1. Core concepts: what valuation really estimates
Relative valuation·Using market pricing of comparable companies as a yardstick through multiples like P/E, P/B and P/S. Fast and intuitive, but it follows the crowd.
Discounted cash flow·Projecting future cash flows and discounting them to today. Theoretically the most solid approach, extremely sensitive to growth and discount rate.
Price is what the market votes today; value is the present value of future cash. Prices can deviate from value for a long time, which is why valuation is judgment, not arithmetic.
2. The two schools side by side
P/E ratio
＋ Simple and widely quoted
－ Useless when earnings are negative
适合 Mature firms with stable profits
P/B ratio
＋ Works for asset-heavy industries
－ Distorted for asset-light firms
适合 Banks, real estate, manufacturing
Use both schools as a cross-check. When relative and absolute answers diverge, audit your assumptions before blaming the market.
| Tool | Best for | Main weakness |
|---|---|---|
| P/E | Stable profitable firms | Earnings can be managed |
| P/S | High-growth loss-making firms | Ignores profitability |
| DCF | Predictable cash generators | Assumption-driven |
3. Three steps to a valuation range
Pick the tool
Match the metric to the business model and its life-cycle stage.
Pick true peers
Similar industry, size, growth and capital structure. Use the median, not the mean.
Stress the assumptions
Move growth and discount rates one notch and watch the range move.
Growth is the most valuable factor in shareholder value. High-growth stories command richer multiples, but growth quality decides the multiple: acquisition-driven growth gets discounted heavily.
4. Valuation in the AI era
AI compresses comparable screening, data cleaning and scenario runs from weeks to hours. What it cannot compress is judgment about moats, management and industry structure.
- Peer clustering by business structure, not label.
- Alternative data flowing into forecasts.
- Sentiment quantified as a short-term risk premium.