4 financial indicators to evaluate the value of stocks in terms of fundamentals

Fundamental investors generally make investment decisions based on the intrinsic value of stocks. They tend to think that investing in stocks that are perceived to be undervalued is likely to raise potential profits. Conversely, they believe that buying “overvalued” stocks increases the risk of loss. The company's earnings report can provide insight into the value of stocks, and fundamental investors generally investigate the following four indices.

PER (Price Earnings Ratio, Net Profit Ratio) indicates the degree of depreciation of stock prices compared to earnings per share (EPS).

PER can be calculated by dividing market capitalization by net profit.

PER is a financial indicator that is widely used to measure the evaluation of companies that are making stable profits. In the case of US stocks, there are also market participants who recognize that PER of less than 20 times is appropriate for companies with a growth rate of less than 10%. Since the level of PER differs depending on the type of industry, it is important to compare it with other companies in the same industry. If PER is significantly below the industry average, the stock may be undervalued. However, keep in mind that stocks of companies regarded as major players in the industry are often traded at high stock prices.

PBR (Price Book-Value Ratio) is calculated from the dissolved asset value of a company. It shows how many times the stock price is compared to the net assets per share that occurs when the company dissolves.

PBR can be calculated by dividing a company's total market capitalization by its net assets.

PBR is commonly used to evaluate business cycle stocks. In the US market, a PBR of less than 1 may be considered appropriate. However, in the Japanese market, it is better to understand that interpretations may change slightly depending on the market, as there is also a background where the Tokyo Stock Exchange is making “improvement requests to companies that have split PBR 1 times” in order to arouse investment sentiment.

PSR (Price to Sales Ratio) is an index that measures a company's stock price in relation to earnings per share.

PSR can be calculated by dividing a company's total market capitalization by sales.

PSR is used to evaluate businesses with red and not yet profitable growth potential. When using this indicator, different industries may have different levels of profitability and revenue growth, so it's important to compare a company's PSR with others in the same industry to understand the relative evaluation.

The PEG ratio (Price Earnings Growth Ratio) measures corporate value that takes into account both PER and the growth potential of corporate profits.

The PEG ratio is calculated by dividing a company's PER by the expected profit growth rate over a period of time.

PEG ratios are often used to evaluate companies that have the potential to grow. This is because for companies with high growth potential, PER may also be high, and may decline over time as earnings expand. PEG ratios below 1 are generally considered underestimated.

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