The analytical process of determining the current worth of an asset, company, or financial instrument using various methodologies such as discounted cash flow analysis, comparable company analysis, or asset-based approaches. Valuation is fundamental to investment decision-making, as it helps traders and investors assess whether a security is overpriced, underpriced, or fairly valued relative to its intrinsic value. Market prices can deviate significantly from calculated valuations for extended periods due to sentiment, momentum, and behavioural factors.
Example
“The analyst's discounted cash flow valuation placed the stock's fair value at $95, suggesting a 20% upside from its current market price of $79.”