Valuation

Valuation means an estimate of how much a company, asset, or investment is worth. In simple terms, valuation helps investors judge whether something looks cheap, expensive, or fairly priced. Valuation is important because investors do not only care about whether a company is good. They also care about how much they are paying for that company. A strong company can still be a bad investment if its price is too high. For example, if two companies earn similar profits but one company’s stock price is much higher, investors may compare their valuations to decide which one looks more attractive. Valuation is not the same as stock price. Stock price tells you the price of one share, while valuation tries to judge the overall worth of the company or investment.