How to determine underestimated promotions, quickly and simple?
When buying shares of companies, one should focus not only on their popularity and how many dividends can be obtained in the future.
A more important indicator is the assessment of security, how high the market price of the action is in relation to its real value.
Based on this, the action can be underestimated - with high growth prospects, or overestimated - with a high risk of price reduction.
It is profitable to invest in underestimated shares, since this is an opportunity to purchase securities at a price below their real value and due to this to get additional profit.
However, you should not completely trust the recommendations of analysts - their assessments can be delayed or erroneous.
Therefore, it is useful to learn how to independently check which shares are really underestimated, especially since it is not as difficult as it seems.
Simple Methodology for Establishing Promotions
To identify underestimated shares, four main indicators are used. Let's analyze them in detail and with examples.
| Indicator | What shows | How to count | What to pay attention to |
|---|---|---|---|
| P/E (price/profit) |
How much investors pay for $ 1 profit of the company | Promotion price ÷ EPS | The lower the p/e, the more profitable the action. Compare with the average industry |
| P/b (price/balance sheet) |
Compares the price of the action with its balance sheet | Promotion price ÷ (own capital ÷ the number of shares) | P/B less than 1.5 indicates potential underestimation |
| EPS (profit per share) |
How much net profit is for each promotion | Net profit of the number of shares in circulation | The higher and more stable growth EPS, the better |
| FCF (free cash flow) |
The money that the company remains after expenses and investments | Operational cash flow - capital costs | Stable growth and positive indicator - a good sign |
- Price / profit (p / e) ratio of the market price for profit over the past year
P / E = Promotion / Profit price per share (EPS). The lower this indicator, the more profitable the purchase.
Example: Alphabet (Google):
Promotion price: 157.04 USD; EPS: 6.46 USD
Calculation: 157.04 / 6.46 ≈ 24.3
If in the industry the average P/E above (for example, 30), then the action may be underestimated.
- Price / Balance value (p / b)
P / b = Promotion price / Balance value per share. If the indicator is less than 1.5, the action is potentially interesting.
Example: Berkshire Hathaway:
Promotion price: 537.72 USD; Balance value per share: 384.09 USD
Calculation: 537.72 / 384.09 ≈ 1.4
The action looks underestimated (p/b <1.5).
- Free cash flow (Free Cash Flow, FCF)
Shows how much free money the company remains after expenses and investments. The stable growth of this indicator indicates the financial stability of the company.
Example: Apple has FCF:
- In 2024: 85 billion USD
- In 2025: 92 billion USD
FCF growth shows the financial health of the company.
- Comparison with similar companies
Compare the company's financial indicators with its competitors. If, with similar profit and growth indicators, the price of shares is much lower, then the action may be underestimated.
Example: Delta Air Lines has a P/E indicator of about 7.9, while the average industry is about 15. So Delta shares are potentially interesting for investment.
You can find the data necessary for calculations both on the websites of companies and on such resources as:
- Yahoo finance (finance.yahoo.com)
- Google Finance (Google.com/finance)
Let's try to analyze the 10 most liquid shares in the stock market:
| Company | Tiker | Promotion price (USD) | P/E | P/b | Grade |
|---|---|---|---|---|---|
| Apple Inc. | Aapl | 223,89 | 28,5 | 34,9 | Reveal |
| Microsoft Corp. | MSFT | 382,14 | 35,2 | 15,1 | Reveal |
| Amazon.com Inc. | Amzn | 196,01 | 58,7 | 8,9 | Reveal |
| Alphabet Inc. | Googl | 157,04 | 24,3 | 5,4 | Normal price |
| Berkshire Hathaway | BRK.B | 537,72 | 8,5 | 1,4 | Underestimated |
| Johnson & Johnson | JNJ | 155,36 | 17,8 | 5,7 | Normal price |
| Tesla Inc. | TSLA | 282,76 | 72,3 | 14,2 | Reveal |
| JPMorgan Chase & Co. | JPM | 162,45 | 10,3 | 1,2 | Underestimated |
| Visa Inc. | V | 346,33 | 32,6 | 14,8 | Reveal |
| Walmart Inc. | WMT | 89,76 | 23,4 | 4,9 | Normal price |
As you can see, far from all popular promotions are attractive for purchase, especially since many of them do not pay dividends. That is, profit can only be obtained in case of price growth, and due to overvaluation it is unlikely.
When assessing the neocality of shares, it is important to analyze not only financial indicators, but also the prospects of the industry in which the company operates.
Factors, such as technological trends, changes in consumer preferences and legislative initiatives, can significantly affect future profitability.
In addition, the assessment of the competitive advantages and quality of company management will help to understand its potential for growth and stability in the market.
If we talk about my personal preferences, then everything else, I try to buy promotions that are as far as possible from my maximum prices. That is, they can in the future restore the maximum cost.
Thus, an integrated approach, including an analysis of financial coefficients, industry prospects and internal factors of the company, will more accurately determine the underestimated shares and make reasonable investment decisions.