Back To Basics: How to Value a Stock

Last week's frightening plunge has forced investors to ponder--some for the first time--just how to determine what a stock is worth.

There was little doubt for the generations of Americans that hewed to the teachings of Benjamin Graham and David Dodd, the legendary prophets of value investing. In the 1930s they preached that the price of a company's stock should be tightly pegged to its profits--the famous price-to-earnings ratio, or P/E, derived by dividing a stock's price by its earnings per share. The dividend yield (the payout as a ratio of the stock price) also mattered. On that basis, stocks have...

Want the full story?

Subscribe Now


Get TIME the way you want it

  • One Week Digital Pass — $4.99
  • Monthly Pay-As-You-Go DIGITAL ACCESS$2.99
  • One Year ALL ACCESSJust $30!   Best Deal!
    Print Magazine + Digital Edition + Subscriber-only Content on

Learn more about the benefits of being a TIME subscriber

If you are already a subscriber sign up — registration is free!