Glossary term
Valuation
Estimating what a company is worth compared with its current market price.
Valuation compares price to business fundamentals such as earnings, cash flow, book value, revenue, dividends, or future cash flows. A good company can still be a bad investment if the price already assumes perfection.
Example: A stock trading at 40 times earnings may be cheap if profits can grow rapidly for years, but expensive if growth is slowing.