Getting an independent understanding of a stock's worth is very powerful for trading as you can use your valuation to open positions that the market doesn't 'see.' For example, if you think the company is worth more than the market price, you can open a bullish trade (buy calls or sell puts). Conversely, if you believe the company is worth less than the market price, you can open a bearish trade (buy puts or sell call spreads).
You can also use our Stock Scenario tool to find the optimal way to trade your outlook.
We wrote an entire article about how to use the stock valuation model we've built in Excel and included an example. Read more in our blog. This article will be the abbreviated version.
- Install our Excel Plugin - Excel & Google Sheets Integration .
- Download the Excel template.
- Import the data in the import tab. Fill in the assumptions.
- Fill in the EPS-PE model: Check the automatic model and adjust the assumptions according to your growth projections and PE ratio.
- Check what assumptions (growth rate + PE ratio) will lead to the current market price: This will help validate your thesis and shed light on the counter hypothesis.
- Check Analyst recommendations.
- If there is a sufficient margin of safety - trade. You don't need to trade every stock you analyze. This is a bonus of the automatic model - You don't need to spend too much time on each stock, so you can examine many stocks to find a good trade.
- Using the Stock Valuation Excel Template – Step-by-Step guide (blog)
- Video on how to import options data to Excel Options data in Excel [Internal]