G'day all:

I've been investing for a few years but haven't had a clear-cut strategy for choosing investments. Note that I'm not particularly interested in trading, but in finding undervalued companies with good fundamentals for growth in the long term.

Recently I've stumbled on this formula which is used to find the intrinsic value of a stock (i.e. what the stock is 'really' worth as opposed to what its share price is). It basically says that Return on Equity is the most important function when valuing stocks.

Anyway, broken down the formula is basically:

ROE/IRR*EQPS

Where:

ROE = Return on Equity

IRR = Internal Rate of Return (I've been using 15%)

EQPS = Shareholders Equity Per Share

What I'm interested in knowing is the opinions of ASF members on this formula, realizing that other fundamentals also need to be included when evaluating a company.

Any thoughts would be appreciated as I'm in the beginning stages of forming a stock selection strategy.

Thanks in advance,

Ty.

## Bookmarks