It seems you have JavaScript disabled.

Ummm.. Yeah... I'm going to have to ask you to turn Javascript back on... Yeah... Thanks.

Another Method Of Stock Market Valuation at Trader’s Narrative




Another Method Of Stock Market Valuation


Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

Below is an interesting chart courtesy of Ford Equity Research. It is a comparison of their PVA ratio and the Ford Universe Price Index:

Ford’s price to value ratio (PVA) is computed by dividing the price of a company’s stock by the value derived from a proprietary intrinsic value model. A PVA greater than 1.00 indicates that a company is overpriced while a PVA less than 1.00 implies that a stock is trading below the level justified by its earnings, quality rating, dividends, projected growth rate, and prevailing interest rates.

Click to see a larger version of the chart:
Ford Equity Research valuation Dec 2009

It seems to correctly identified major tops but a bit early. As you can see, the 1987 top corresponded to a 1.81 reading which means that prices were almost double what they should have been. The PVA ratio also found the Tech bubble in late 1999 at almost the same level of over-valuation.

The next top is not as clear cut. The PVA spiked to 1.62 in mid 2005 when the S&P 500 was trading at 1200. In the next 2 years it would rise another +350 points before topping. But by then, the PVA was lower. Right now it stands at par.

Enjoyed this? Don't miss the next one, grab the feed  or 

                               subscribe through email:  

4 Responses to “Another Method Of Stock Market Valuation”  

  1. 1 burt

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    When was this indicator developed? It’s easy to come up with indicators that forecast the past. Out of sample is the acid test.

  2. 2 just doug

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Unfortunately when financial fraud has been officially sanctioned I’m not sure any valuation measures can be relied on to the same extent as in the past.

  3. 3 Catalin

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Details regarding Ford Universe Price Index ?

  4. 4 Babak

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Catalin, you can ask them but since it is “proprietary” I’m not sure if they would be very forthcoming.

Leave a Reply