Research a Stock's Valuation

​

What You’ll Learn

• How to determine if a stock is expensive or cheap
• How to use valuation metrics (P/E, PEG, Price-to-Sales)
• How to compare a stock to its peers and history
• How to make informed buy/sell/hold decisions

​

Step 1: Discover a Stock

​

Through Social Media or News

1. See a stock mentioned on Reddit, Twitter, or news
2. Note the ticker symbol (e.g., TSLA, AAPL, NVDA)

​

Find the Stock in Ape AI

• Tap Search icon (🔍) at top
• Type the ticker or company name
• Tap the result

• Go to Discover tab
• Browse Banana Bites for trending stocks
• Tap on a story to see the ticker

• Mention the ticker in chat: “Tell me about $TSLA”
• Tap the ticker link in AI response

​

Step 2: View the Ticker Page

​

Initial Overview

• Company logo and name
• Current price and change
• Market status (Open/Closed)
• Volume traded

• Historical price movement
• Time periods: 1D, 1W, 1M, YTD, 1Y, 5Y, All
• Interactive chart

• 52-week range
• Market cap
• P/E ratio
• Average volume

• Near high = Recently strong, potentially expensive
• Near low = Recently weak, potentially cheap
• Middle = Neutral positioning

​

Step 3: Click “Pricey or Cheap” Prompt

​

Access Valuation Analysis

1. Scroll to “[Company]‘s Story” section
2. You’ll see 4 analysis cards:
   • 💰 How It Makes Money
   • 📈 Why It Could Pop or Drop
   • ⚠️ Bagholder Risks
   • 💵 Pricey or Cheap ← Click this one
3. Tap “Pricey or Cheap”

​

What You’ll See

• P/E Ratio (Price-to-Earnings)
• EV/EBITDA (Enterprise Value multiple)
• Price-to-Sales ratio
• FCF Yield (Free Cash Flow)
• PEG Ratio (P/E to Growth)

• Current vs 5-year average
• Current vs 10-year average
• Trend direction

• How it compares to sector average
• How it compares to similar companies
• Relative positioning

• Clear verdict: Expensive, Fairly Valued, or Cheap
• Reasoning for the conclusion
• Context and caveats

​

Step 4: Show the Chat Result

​

Understanding the Analysis

Pricey or Cheap? Expensive

Current Valuation:
━━━━━━━━━━━━━━━━━━━━
P/E Ratio: 181.08
- Much higher than 5-yr avg (72.3)
- Much higher than sector avg (15.2)
- Premium pricing

EV/EBITDA: 87.61
- Well above historical average
- Sector average: 12.5
- Significant premium

Price-to-Sales: 14.2
- Higher than own history (8.1)
- Sector average: 2.1
- Growth expectations priced in

FCF Yield: 0.28%
- Lower than typical (1.5-2%)
- Indicates expensive valuation

Bottom Line:
━━━━━━━━━━━━━━━━━━━━
Tesla is trading at a significant premium
to both its own history and the auto sector.
The market is pricing in strong growth from:
- Robotaxi/FSD technology
- Energy storage expansion
- AI/autonomy breakthrough

You're paying for the future, not the present.

Consider:
✓ Only buy if you believe in the story
✓ Expect higher volatility
✓ Smaller position size appropriate
✓ Wait for pullback if possible

• Expensive = Currently overvalued, risky entry
• Fairly Valued = Reasonable price, balanced risk/reward
• Cheap = Potentially undervalued, better entry opportunity

​

Step 5: Ask Follow-Up Questions

​

Deep Dive with Sage

What does a P/E ratio of 181 actually mean for Tesla?

Why is FCF yield important for valuation?

Should I wait for TSLA to get cheaper before buying?

What would be a fair price to buy TSLA at?

Show me cheaper EV stocks with similar growth potential

Compare TSLA valuation to RIVN and LCID

​

Sage’s Follow-Up Analysis

P/E ratio of 181 means you're paying $181 for every
$1 of earnings Tesla generates.

Context:
- S&P 500 average: ~20-25
- Growth stocks: 30-50 typical
- TSLA at 181: Pricing in massive growth

Historical TSLA P/E:
- 2020 peak: 1,200 (peak bubble)
- 2023 low: 40 (fear/doubt)
- Current: 181 (optimism)

Fair value estimate: $320-380 range
(Assuming 15-20% annual growth for 5 years)

Current price: $448
Premium to fair value: ~25-40%

Recommendation:
- If bullish on story: Wait for $380-400 dip
- If neutral: Consider alternatives
- If bearish: Stay away

Better risk/reward in:
- RIVN (P/S: 3.2 vs TSLA 14.2)
- GM (P/E: 5.1, dividend 1.1%)

​

Understanding Valuation Metrics

​

Key Metrics Explained

• Low (< 15): Potentially undervalued or slow growth
• Medium (15-25): Fairly valued
• High (> 25): Expensive or high growth expected
• Very High (> 50): Speculative, risky

• Doesn’t work for unprofitable companies
• Varies wildly by industry
• Can be manipulated with accounting

• < 1.0: Undervalued relative to growth
• 1.0-1.5: Fairly valued
• > 2.0: Overvalued relative to growth

NVDA:
- P/E: 60
- Expected growth: 50%/year
- PEG: 60 ÷ 50 = 1.2
- Verdict: Fairly valued for growth

• Companies not yet profitable
• Comparing growth stocks
• Tech/biotech sectors

• < 2: Cheap
• 2-5: Reasonable
• > 10: Expensive, growth expected

• Accounts for debt
• Better for comparing companies
• Used by professional investors

• < 10: Potentially cheap
• 10-15: Fairly valued
• > 20: Expensive

• Shows real cash generation
• Better than earnings (can’t fake cash)
• Indicates financial health

• > 5%: Strong value
• 2-5%: Reasonable
• < 2%: Expensive or high growth

​

Comparing to Peers and History

​

Peer Comparison

Compare AAPL valuation to MSFT, GOOGL, and META

AAPL vs Peers:
- Mid-range P/E (not cheapest, not most expensive)
- Below MSFT premium, above GOOGL
- Reasonable given brand strength
- Good FCF yield shows quality

Verdict: Fairly valued within tech leaders

​

Historical Comparison

Is AAPL trading at a premium or discount to its
5-year average P/E?

AAPL Historical P/E:

Current: 30.2
5-year avg: 26.8
5-year high: 39.5 (2021 peak)
5-year low: 18.2 (2022 bear market)

Current vs History:
- Above 5-yr average (+12%)
- Well below peak
- Elevated but not extreme

Percentile rank: 65th
(Trading higher than 65% of last 5 years)

Conclusion:
Moderately expensive by its own history,
but nowhere near bubble levels.

Fair entry: < 28 P/E ($155-160/share)
Good entry: < 25 P/E ($140-145/share)
Current: $175 (slightly expensive)

​

Making the Decision

​

Decision Framework

• P/E below historical average
• Trading near 52-week lows
• Peers more expensive

• ✅ Buy: If fundamentals still strong
• ⚠️ Research why it’s cheap: Value trap?
• ✅ Watch: Add to watchlist, wait for catalyst

• P/E near historical average
• In line with peers
• No major red flags

• ✅ Buy small position: If you like the story
• ✅ Dollar-cost average: Buy gradually
• ✅ Wait for dip: Better entry later

• P/E well above average
• Premium to peers
• Near 52-week highs

• ⚠️ Buy only if very bullish: Higher risk
• ⚠️ Smaller position: Reduce exposure
• ✅ Wait for pullback: Patience pays off
• ✅ Look for alternatives: Cheaper options

​

Real-World Examples

​

Example 1: Finding Value

Current Price: $12.50
P/E Ratio: 6.2
Sector Avg: 8.5
Historical Avg: 9.1

Analysis:
- Trading at 32% discount to sector
- 31% below own average
- Near 52-week low

Why cheap:
- EV transition concerns
- Legacy auto challenges
- Debt levels

Opportunity:
- Dividend yield: 5.2%
- Strong free cash flow
- Potential turnaround story

Verdict: Value opportunity for patient investors

​

Example 2: Growth Premium

Current Price: $850
P/E Ratio: 72
Sector Avg: 28
Historical Avg: 45

Analysis:
- Trading at 157% premium to sector
- 60% above own average
- Near all-time highs

Why expensive:
- AI boom expectations
- Dominant market position
- Explosive growth trajectory

Justification:
- Revenue growth: 200%+
- PEG Ratio: 1.4 (reasonable for growth)
- Near-monopoly in AI chips

Verdict: Expensive but growth may justify premium

​

Example 3: Bubble Warning

Current Price: $45
P/E Ratio: 450
Sector Avg: 25
Revenue Growth: 15%

Analysis:
- Trading at 1,700% premium to sector
- PEG Ratio: 30 (way too high)
- Price-to-Sales: 45x

Red flags:
- Valuation disconnected from fundamentals
- Growth not supporting multiple
- Hype-driven momentum

Verdict: Bubble territory - avoid or short

​

Advanced Valuation Techniques

​

DCF (Discounted Cash Flow) Analysis

What's a fair value for AAPL using DCF analysis?

Apple DCF Valuation:

Assumptions:
- Current FCF: $100B/year
- Growth rate years 1-5: 8%
- Terminal growth rate: 3%
- Discount rate: 9%

5-Year Cash Flow Projection:
Year 1: $108B
Year 2: $117B
Year 3: $126B
Year 4: $136B
Year 5: $147B

Terminal value: $2.6T
Present value of cash flows: $1.8T

Intrinsic value per share: $170
Current price: $175
Over/Undervalued: Slightly overvalued (-3%)

Margin of safety: Buy below $153 (10% discount)

​

Sum-of-Parts Valuation

Break down by business segment
Value each separately
Add up for total value
Compare to current market cap

​

Red Flags to Watch For

​

Valuation Red Flags

• Disconnect from fundamentals
• Bubble risk

• Unless hyper-growth (>50%/year)
• Unrealistic expectations

• No fundamental improvement to justify
• Mean reversion likely

• Unjustified valuation gap
• Competition will compress multiples

• Can’t sustain without funding
• Dilution or debt risk

​

Quality Red Flags

• Pricing power loss
• Competition increasing

• Business maturation
• Market saturation

• Financial stress
• Interest burden

​

Common Mistakes to Avoid

​

❌ Don’t Do This

• Look at multiple metrics
• Consider growth and quality
• Compare to peers and history

• Cheap can be a value trap
• Quality companies deserve premium
• Bad business at any price is expensive

• Understand WHY it’s cheap
• Is it fixable or terminal decline?
• Cheap can get cheaper

• Growth can justify high multiples
• Best companies often expensive
• Consider PEG ratio, not just P/E

• Technicals matter too
• Sentiment drives short-term price
• Catalysts create opportunities

​

What’s Next?

​

After Your Research

Ready to buy? → [First $100 in Stocks](first-100-stocks)

Set a price alert → Wait for better entry
Add to watchlist → Monitor for dip

Ask Sage: "Given this valuation, what's my
risk/reward if I buy now?"

​

Keep Researching

• Understanding Company Fundamentals →
• Reading Financial Statements →
• Bagholder Risks Analysis →

​

Success Checklist