Stock Valuation and Sanity Check Spreadsheet
a simple-to-use framework for establishing the value of an individual stock and reviewing financials
Are you interested in individual stock investing? Are you excited about a particular company? Do you want to know more about its financials before you invest? Would you like to estimate its value before you start buying its stock? If yes, then this spreadsheet and course is for you.
In this course, I'll show you how to gather key information, analyze finances, review past performance, and determine total and per-share values for your favorite companies.
I want you to balance your excitement about a company with real-world financial realities. My goal is to help you apply what you know already about a specific business or industry to evaluating financial information – doing a quick sanity check and figuring a reasonable price to pay for a company’s stock.
This process may help you:
- Avoid losing money on unworthy investments
- Avoid losing money by paying too much for a company
- Make money by buying shares at a reasonable price
- Stay calm during market downturns because you’re not dependent on others’ opinions about the value of a company
The spreadsheet is developed based on my research and years of real-world investing in the stock market for my own portfolio. After you go through the course and get accustomed to the process, you'll spend just 15-20 minutes per company getting a handle on its financial worthiness and value.
Julie Rains is a writer with interests in personal finance, investing, faith, and fitness. She holds a Bachelor of Science in Business Administration with a concentration in finance from The University of North Carolina at Chapel Hill.
I started investing in my mid-20s as soon as I had extra money not allotted for groceries and my mortgage payment. I started with mutual funds purchased directly from mutual fund companies and stocks bought through direct investment programs. Back then, these programs were available at no charge. As discount brokers appeared, I got interested in individual stocks as they became easier for the average person like me to buy and sell.
Simply investing my money and not paying attention to the market ups and downs helped me to grow my wealth. But as I built my portfolio and started managing larger sums of money, I figured I needed more – more knowledge, understanding, and insight.
Early on, one of the biggest mistakes I made was paying too much for a great company.
As a business major concentrating in finance, I focused my investing efforts on the business side of evaluation. Did the company make and sell great products in high demand? A "yes" answer often meant I'd buy without evaluating the underlying business value.
But I soon learned that I needed to apply my financial background to developing a value of the company’s stock.
Here's an example: let's say you bought Cisco (CSCO) in June of 2000 and paid $65 per share – during the start of the world's connectivity boom when Cisco was one of its key players. By the way, the company is still around and doing well. The price today is $47. In nearly 20 years, despite tremendous growth in the economy, Cisco has lost almost $20 per share. So, if you happened to buy at the peak and hung on as a long-term investor, then you’d have lost money.
I can’t remember what I paid for Cisco but at some point, I realized that there was more to investing than simply identifying a good company and buying a bunch of shares.
And to be fair, the internet bubble was an unusual time. A more traditional company in which I owned shares during this period grew its profits by nearly 35%, beat market expectations, and still took a hit to its stock price. Investors craved triple-digit growth and shunned companies that didn't deliver -- until the bubble burst.
What some folks have taken from this time period is that they should never invest in individual stocks. My takeaway was that I should be careful how much I pay for an individual stock.
Many experts still talk just about the market and its trends. But I wanted to know how to apply those ideas to investing in stocks. I researched individual stock investing. I got real-life lessons from making my own mistakes and experiencing some successes. I started getting a handle on how this thing worked.
I realized that the market could be very fickle. And I discovered that I don't have a talent for recognizing patterns on technical charts.
Fortunately, I also learned that there are tools and models to evaluate and estimate the value of individual companies.
Eventually, I developed a spreadsheet to help me evaluate stocks and determine a price that I’d pay for a share of stock.
The spreadsheet makes me mad some times because a company I want to buy is often selling at a price that’s just too high. And occasionally, the model tells me that a stock is priced well; but it still goes down after I buy. So it’s not a magic model. It doesn’t predict whether prices will go up or down, or when they go up and down. But overall it’s been helpful.
When the market drops, I can stay calm knowing that my holdings have real value and will, most likely, recover in price. If I have money to invest, I can snap up bargains, drawing on the stock prices I've established earlier for companies on my watch list.
When I hear that the market is too high and there are warnings of pending doom, I can look at my valuations and determine whether the stocks I own are priced too high – or whether they’re priced reasonably. So I have a way of making decisions to buy, sell, or hold.To be clear, I don’t have any secret formula. But I do have formulas that help make sense of the investing world.
I know that many “average” people can be great investors. You probably have knowledge and insights about a particular field or industry. You can learn about a company that interests you and excites you.You can evaluate not just whether a company is a great one (on your own) but you can determine whether it’s a worthy investment and at what price.
If you’re like me, you don’t want to be a slave to other people’s opinions.
I want to give you the freedom to evaluate a company's financials and develop a value for its shares – based on what you know and you believe. That's why I've created the Stock Valuation and Sanity Check Spreadsheet and course materials.