Central Value

Many years of discussion with investment managers made us realize that they use different valuation tools in their stock selection process. DeMarche takes the more popular valuation techniques from both growth and value managers and uses them to calculate a Central Value for each of the 3,000 most liquid stocks. DeMarche uses a proprietary weighting method to create a Central Value from such valuation techniques as P/E, Dividend Discount Rate Models, Price-to-Book, Price-to-Sales, etc.

We calculate the valuation of each company in our database each month. We then use an individual company's valuation and compare it to that company's Clone Group. By making this calculation over time, we are able to determine the relative pricing of one company versus its Clone Group average and determine whether it is selling above, within or below its Central Value.

Clone Group along with our Cost of Equity Capital argues for different decisions within Corporate Finance policy depending on the current valuation of your stock. For instance, share buy backs should not be implemented if a stock is priced by the market very much above historic Central Value.

In addition to understanding Central Value emanating from various valuation techniques, DeMarche's work on Stock Price and Strategic P/E Modeling help companies understand why their stock is priced the way it is and predict how price will evolve relative to earnings based on financial benchmarks and targets established in strategic plans.