If you want to value a stock’s price, there’s an easy way to do that without having to find a lot of data in the Internet. This time, all the data that we’ll need can be found at COL Financial’s database.

The data that we will be needing is the current share price, EPS (earnings per share), P/E Ratio (price to earnings) and EBITDA (earnings before income, tax, depreciation and amortization).

Here’s how we do it.

Using EPS, P/E Ratio & EBITDA To Value A Stock

I choose the stock JFC for this valuation. I previously valuated this stock using the equity-bond theory and I found it to be overvalued. Now let’s take a 2nd guess but this time using this method. First, we get the P/E Ratio as of today by using the formula below;

P/E Ratio = Share price / EPS

JFC’s closing price today is 188.40 Php and its EPS is 5.03. To get these values, go to Stock, type in JFC and click the Valuations tab. You’ll see the EPS under the Per Share Data area. So moving on let’s compute for the current P/E Ratio;

P/E Ratio = 188.40 / 5.03 = 37.46

We now have the current P/E Ratio, we then use this value to compute the PEG Ratio (price to earnings to growth). The formula for PEG is;

PEG = P/E Ratio / 5-yr EBITDA Growth Rate

The 5-yr EBITDA Growth Rate is computed as;

5-yr EBITDA Growth Rate = {[(Year 5 / Year 1) ^ (1/4)] – 1} x 100

Now we have all the equations we need, let’s put it into action.

Accessing COL Financials database, we find the 5-yr EBITDA values below;

Fig. 1 EBITDA

5-yr EBITDA Growth Rate = {[(10,098,322,028 / 6,359,320,366) ^ (1/4)] – 1} x 100 = 12.26%

Computing for the 5-yr EBITDA Growth Rate, we have;

Computing for PEG;

PEG = 37.46 / 12.26 = 3.06

Now, how do we interpret this ratio? Always remember that if the P/E Ratio is almost the same as the growth rate, then the stock is valued at a fair price.

This means that a PEG ratio between 0 to 1 means that the stock is undervalued. A ratio that is between 1 and 2 is fairly valued and a ratio that is greater than 2 is overvalued.

Based on the results above, we can assume that the stock is overvalued for now.

Final Thoughts

Take note that to have a better present valuation of the stock’s value, please consider using the twelve trailing month values of the EPS instead of the annual values in COL Financial’s valuations. You can find it in the quarterly financial statements.

You can try to use this in your investments and find out if they are undervalued or not.

Happy investing!