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Stock valuation

Fernando Palmer


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Hi Fernando, thanks for your question. 

The difference between the absolute and relative valuation methods is the same as the difference between absolute and general in any context. The absolute method looks at stock and it’s 100% focused on the stock only. Analysts focus on earnings, revenue, market performance, future outlook, etc. 

Contrarily, relative valuation tends to compare the stock with other stocks within the same industry. Hence, analysts wouldn’t be only looking at Facebook, but also at other tech giants from the same sector e.g. Twitter. This way, they compare market performance, earnings per share, price to earnings ratio, etc., to identify best investment opportunities and stocks that are undervalued by the market.


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