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There are several valuation formulas and approaches similar to the Benjamin Graham's Graham Number that investors use to estimate the intrinsic value of stocks. Here are some of them:
Earnings Power Value (EPV):
EPV focuses on the sustainable earnings of a company, excluding any abnormal or non-recurring items. It is calculated as Earnings before Interest and Taxes (EBIT) multiplied by a suitable capitalization rate.
Dividend Discount Model (DDM):
DDM estimates the intrinsic value of a stock by discounting its expected future dividend payments to present value using a discount rate. The Gordon Growth Model, a variant of DDM, assumes constant dividend growth.
Free Cash Flow to Equity (FCFE) Valuation:
FCFE valuation estimates a stock's value by discounting the expected future free cash flows to equity shareholders at an appropriate discount rate. It focuses on the cash available to shareholders after covering expenses and investments.
Sum-of-the-Parts (SOTP) Valuation:
SOTP is used for companies with multiple business segments or divisions. It values each segment separately and then combines them to arrive at the overall company valuation.
Residual Income Valuation:
Residual Income Valuation calculates the intrinsic value by subtracting the cost of equity from the net income in future periods. It accounts for the opportunity cost of equity capital.
This approach values a company based on its tangible and intangible assets. It can be especially relevant for companies with valuable assets, such as real estate or intellectual property.
Owner Earnings Valuation:
Owner Earnings Valuation is similar to Warren Buffett's approach. It focuses on the cash generated for shareholders and is calculated by adding net income, depreciation, and amortization while subtracting capital expenditures.
Adjusted Present Value (APV):
APV combines the value of a company's core operations (leveraged or unleveraged) with the value of any financing or tax-related benefits, such as interest tax shields.
Enterprise Value (EV) to Earnings Before Interest and Taxes (EBIT) Multiple (EV/EBIT):
Similar to the P/E ratio, this multiple compares a company's enterprise value to its earnings before interest and taxes. It accounts for the company's debt and is often used for comparing companies within an industry.
Price/Sales (P/S) Ratio:
The P/S ratio compares a company's stock price to its revenue per share. It's particularly useful for evaluating companies with low or negative earnings, such as startups.
Price/Cash Flow (P/CF) Ratio:
This ratio compares a stock's price to its cash flow per share. It provides insight into a company's ability to generate cash.
Relative Valuation (Comparables Analysis):
This method compares a company's valuation multiples (P/E, P/B, P/S, etc.) to those of similar companies in the same industry to assess relative value.
Real Options Valuation:
Real options valuation applies option pricing techniques to assess the value of managerial flexibility and strategic decisions that a company may have in the future.
Each of these valuation methods has its strengths and weaknesses, and the choice of which one to use depends on the nature of the company, the availability of data, and the investor's preferences and goals. Often, investors use a combination of these methods to gain a more comprehensive view of a stock's intrinsic value.