{"id":18480,"date":"2021-07-23T07:07:37","date_gmt":"2021-07-23T07:07:37","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=18480"},"modified":"2024-04-05T06:37:24","modified_gmt":"2024-04-05T06:37:24","slug":"stock-value-based-on-fcf-valuation-model","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/stock-value-based-on-fcf-valuation-model\/","title":{"rendered":"Stock Value Based on FCF Valuation Model"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/A10ZXpSEZaM\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><span data-mce-type=\"bookmark\" style=\"display: inline-block; width: 0px; overflow: hidden; line-height: 0;\" class=\"mce_SELRES_start\">\ufeff<\/span><\/iframe><\/p>\r\n\r\n<p>If the per-share value of equity obtained from the model is lower than the share price, the stock is overvalued.<\/p>\r\n<p>If the per-share value of equity obtained from the model is higher than the share price, the stock is undervalued.<\/p>\r\n<p>If the per-share value of equity obtained from the model is the same as the share price, the stock is fairly valued.<\/p>\r\n<blockquote>\r\n<h2>Question<\/h2>\r\n<p>Which of the following situations <em>most likely <\/em>results in a stock being overvalued?<\/p>\r\n<ol style=\"list-style-type: upper-alpha;\">\r\n\t<li>When the market price is higher than the intrinsic value.<\/li>\r\n\t<li>When the market price is less than the intrinsic value.<\/li>\r\n\t<li>When the market price is equivalent to the intrinsic value.<\/li>\r\n<\/ol>\r\n<h4>Solution<\/h4>\r\n<p><strong>The correct answer is A.<\/strong>\u00a0<\/p>\r\n<p>A stock is overvalued when the market price is higher than the intrinsic value.<\/p>\r\n<p><strong>B is incorrect.\u00a0<\/strong>When a stock\u2019s market price is lower than its intrinsic value, the stock is considered undervalued.<\/p>\r\n<p><strong>C is incorrect.\u00a0<\/strong>When the market price is equivalent to the intrinsic value, the stock is considered fairly valued.<\/p>\r\n<\/blockquote>\r\n<p>Reading 24: Free Cash Flow Valuation<\/p>\r\n<p><em>LOS 24 (m) Evaluate whether a stock is overvalued, fairly valued, or undervalued based on a free cash flow valuation model.<\/em><\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>\ufeff If the per-share value of equity obtained from the model is lower than the share price, the stock is overvalued. If the per-share value of equity obtained from the model is higher than the share price, the stock is&#8230;<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[102,401],"tags":[216,402,459,471],"class_list":["post-18480","post","type-post","status-publish","format-standard","hentry","category-cfa-level-2","category-equity-valuation","tag-cfa-level-2","tag-equity-valuation","tag-reading-28-free-cash-flow-valuation","tag-stock-value-based-on-fcf-valuation-model","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Stock Value Based on FCF Valuation Model - CFA, FRM, and Actuarial Exams Study Notes<\/title>\n<meta name=\"description\" content=\"Understand the relationship between market price and intrinsic value in stock valuation analysis, using free cash flow valuation models.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/stock-value-based-on-fcf-valuation-model\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Stock Value Based on FCF Valuation Model - 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