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Why Value Price is changing overtime?
posted Mar 07 '14 by alex
Why Value Price is changing overtime?

I got quite a few emails lately where people are asking why Value Price is changing over time. For some stocks it is changing indeed more often than we expect. More than that, it looks like in a volatile market the changes are more frequent. Here is what I think.

There are several components that can affect the changes in Value Price:

1. Fundamental Values.
Of course, fundamental values, i.e. financial statements, have big impact on the value price. And this component is relatively stable because most of the fundamental values are changing only once a year or once a quarter, when new annual or quarterly statement is released.

2. Analyst Estimates.
We are using Analyst's estimates to better project future growth. I should say, anticipated future growth. Analysts can change their ratings and projections any time they want and usually you may see such changes reflected in the price change. For example, when stock being "upgraded" or "downgraded" by analyst.

3. Price Ratios.
Some elements used in Value Price calculations are dependent on the current market price. For instance, quite important component of the formula is Current PE, which is Price per Earnings ratio. And even knowing that earnings is relatively stable (it is considered to be Fundamental Value - #1 above), market price may fluctuate significantly. There is a direct dependency between the Value Price and PE: the greater the market price, the bigger PE, the higher Value Price estimates.

There is a detailed explanation of the Value Price computations available here:

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