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efinancemanagement.com/investment-decisions/advantages-disadvantages-of-equity-valuation
There are many advantages and disadvantages of equity valuation which are as follows:
Errors in Assumption
When valuing equity of a company, analysts make many assumptions such as the company will reinvest its
earnings, or the company will have x amount of cash flow each year. But these assumptions may be wrong. The
company may not re-invest its income or may not earn the estimated cash flow. Even if such simple assumptions
go wrong, it can affect the value of its equity and lead to wrong decisions.
Thus before using equity valuation methods to analyze stocks, it is important to consider all its benefits and
drawbacks to make informed investment decisions.
Reference
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