Fair Value of a Stock

Fair Value
The estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies

Calculate the fair value of a stock

PE = price per share (at a specific date) divide by the earnings per share (EPS)

FV = PE x EPS
Where,
PE has to be set arbitrarily, normally using the industry average, or historical number, and

EPS is also set arbitrarily from:
1) EPS from latest annual report, or
2) Forecast of EPS of the next financial year.

Different people will have different FV of a stock, depending of the numbers set for the two variables PE and EPS. While there may be a consensus of the PE among different analyst, how good the calculated FV will depend on how accurate the analysts assess the future earnings of the company.

Method
1) easy, the latest developments and financial performance will not be taken into account
2) need more efforts to do research on the company to assess the future earning potentials, and analysis of the quarterly results will help to guide in forecasting an EPS that will be near the final result in the final quarter.

Stock price above the FV – overvalued
Stock price below the FV – undervalued