Frequently Asked Questions

Valuation Basics

ValuEngine.com was created to provide the same cutting edge valuation and forecasting tools to the individual investor that the Company has developed for financial professionals throughout the US and Asia. Based on the research and conclusions of Dr. Zhiwu Chen, professor of finance at Yale University’s School of Management, the ValuEngine Stock Valuation Model represents the next generation of valuation and forecasting technology. With its own research team working to design and refine practical applications of economic and financial theory, ValuEngine.com is a solid bridge between the academic world and the financial marketplace. Previously accessible only by equity fund managers and other professionals, our proprietary computer models are now available to private investors. They will enhance your ability to evaluate individual stocks, manage your portfolio, and allocate capital for maximum returns. Detailed instructions for the use of these tools are available throughout our site. For more information, please click on our site tour or contact us at support@valuengine.com.
Yes it does. First, a 14 month real world market test was made by running the Infinity Fund LP hedge fund entirely with the ValuEngine.com valuation and forecasting tools. During this time, the fund consistently outperformed the S&P 500. The ValuEngine Stock Valuation model was also back-tested over a fifteen year period, rigorously using out-of-sample signals. The Valuation Model outperformed the S&P 500 throughout this period. More information on the back-testing methodology is available in the research findings section of our site.
Not at all. The ValuEngine “toolbox” contains valuation and forecasting techniques that are valuable no matter what kind of investor you may be, or what drummer you may march to. For example, with our screening function, we’ll help you select stocks that match your risk tolerance level with the returns you’d like to see. Then, our Portfolio Functions will help you allocate your capital across the stocks in your portfolio to help you reach your stated investment objective. Whether you are a day trader, or are accumulating assets for your retirement, you’ll find what you need to help you reach your goals in your ValuEngine.com toolbox.
ValuEngine is firmly rooted both in the academic world and in the financial marketplace. This duality of purpose unites theory and practice in a way that is unique to our company, and has been instrumental in our ability to distill practical applications from a significant body of economic and financial research. The result has been new and more effective methods of asset valuation and market forecasting. These in turn have engendered proprietary investment tools such as our Stock Evaluation Model and its benchmark Model Price for individual stocks, stock portfolios and even whole indexes like the S&P 500 and our Portfolio Advisor function and portfolio forecasting service. The full range of advisory and analytical capabilities provided by ValuEngine.com exist nowhere else in the investment advisory service universe.
All of the stocks listed on United States stock exchanges and on the NASDAQ, including 700 foreign stocks and ADRs.

ValuEngine’s proprietary financial models and research efforts were created and continue to be analyzed by a combination of academics and wall street professionals. ValuEngine’s team continues to test the effectiveness of the models, track performance, and investigate possibilities to further improve the models. In addition, research to cover foreign markets such as Tokyo has begun. While no one individual is responsibile for the entire research project, the combination of academics from Ivy League institutions and wall street professionals bring together theory and actual practice. For additional information on the actual academic research that serves as the basis for ValuEngine’s research project, please see the following papers:

Yes. All information in your registered account is kept strictly confidential. ValuEngine.com has no contact with any third party marketers or other potentially interested parties.
Depending on their financial goals, investors have different levels of risk tolerance and varying time frames within which they seek to achieve results. At one end of the spectrum we have the day-trader, who operates in the buying and selling of financial instruments within the same trading day and typically has a strong tolerance for risk, while at the other end we find relatively risk-averse investors managing retirement plans or college funds. The word “type” refers to your personal investment objective more than anything else. Regardless of your risk tolerance, ValuEngine offers you invaluable help in realizing your financial goals.

Stock Valuation Model

What sets the ValuEngine Valuation Model apart from variants of traditional discount models is a reasonable parameterization of each firm’s EPS growth and the economy’s interest-rate processes, plus the way in which these parameters are estimated. This is also why our proprietary model performs better than all other equity-valuation models available in identifying truly undervalued, profitable stocks. Many research studies have demonstrated that the traditional discount models usually do not help much in finding profitable stock opportunities. Our model valuation not only captures the properly discounted value of a stock’s future EPS flow, but also reflects how the market has historically valued the stock in relation to interest rates, and current and expected future EPS. In addition, it takes into account the stock’s liquidity and supply demand factors.

There are three basic variables utilized in the ValuEngine Stock Valuation Model:

  • The most recent, trailing 12-month earnings-per-share information (EPS) of the stock from the day of valuation,
  • The most recent forecasted EPS of the company for the future 12-months (based on analyst consensus) from the day of valuation, and
  • The current 30-year Treasury yield.

The values of these three variables can change slightly or drastically from day-to-day for any given stock. These changes in the value of any or all of the variables are dependent upon the current and future prospects for the company and the macro economy. Consequently, a stock’s model price is subject to change on a daily and intra-day basis.

Yes, there are seven firm-specific and three interest-rate parameters that are all determinants of a stock’s fair value today, though the importance of each differs across the parameters. The firm-specific parameters reflect, among other things, its long-term EPS growth, its actual-EPS growth stability, the nature of the firm’s business cycle, the volatility or stability of analyst expectations about its future EPS growth, and sensitivity to macroeconomic risk factors. These EPS parameters differ from firm to firm and across business sectors, giving the model ample flexibility to capture each stock’s distinct characteristics.
The model parameters for each stock are all estimated from the stock’s own history, reflecting not only the business characteristics of the firm, but also the usual supply-demand situation for the stock by market participants. The resulting model price thus captures the firm’s fundamental soundness, management effectiveness, and the implicit historical valuation standard of the stock by the market.
ValuEngine recommends that investors refrain from applying the ValuEngine Valuation Model to newly issued stocks or young stocks (those that have been publicly traded for less than two years). The ValuEngine Valuation Model requires at least two years of information to arrive at plausible projections.
Because the values of the three fundamental variables can all change from day to day and intra-day for each stock, each stock’s model price is subject to change on a daily and intra-day basis.
In determining an individual stock’s fair value, EPS and EPS growth are more important than interest rates.
Not necessarily. The ValuEngine Valuation Model automatically adjusts for both accounting irregularities and EPS estimates from companies that are consistently inaccurate. Of course, the better the forecasts about a firm’s future EPS, the more accurate the resulting model price for the stock.
Traditionally, stocks are considered overvalued if they have a highP/E ratio and a high market/book ratio. In this particular case, the stock may be considered “overvalued” in the traditional sense. However, the ValuEngine Valuation Model is based in part on the stock’s historical valuation in relation to interest rates and the stock’s current and expected EPS. Consequently, if the stock is historically overvalued in the traditional sense, it’s possible that once the stock price falls beneath its historic valuation level, it will be considered “undervalued” by the ValuEngine Valuation Model.
Traditionally, stocks are considered undervalued if they have a low P/E ratio and low market/book ratio. In this particular case, the stock may be considered “undervalued” in the traditional sense. However, the ValuEngine Valuation Model is based in part on the stock’s historical valuation in relation to interest rates and the stock’s current and expected EPS. Consequently, if the stock is historically undervalued in the traditional sense, it’s possible that once the stock price rises above its historic valuation level, it will be considered “overvalued” by the ValuEngine Valuation Model.
The ValuEngine model price for a given stock is based on the current fundamentals of both the company and the macro economy. However, the model price can be applied in conjunction with momentum and other relative-strength rankings included on this site.

Portfolio Advisor

The ValuEngine Portfolio Forecast will help you maximize returns in your portfolio by showing you the best allocation of capital across the stocks in your list. Many people can pick good stocks but then they ignore the all important matter of how much of a given amount of capital to invest in each one. For example, if you have five stocks in your portfolio and invest 20% of your capital in each one, you’ll get one result in a given period of time. If, however, you vary your allocation of capital to, say, 40% in one stock, 20% each in two others, 15% in another, and 5% in the last stock, your result will be very different. You tell Portfolio Forecast what you want to achieve in terms of future returns, and Portfolio Forecast will then allocate your capital across your portfolio to give you the best chance of success.
No. The Portfolio Forecast will allocate capital across whatever list of stocks you may choose for your portfolio and work to maximize your returns with acceptable risk. In PortfolioForecast, you may choose the strategy that best suits your tolerance for risk, i.e. “aggressive”, “moderate” or “conservative”. Portfolio Forecast will then suggest portfolios of stocks that suit the investment style you chose. Or, you may select stocks you like and make up your own list. No matter which method you choose, Portfolio Forecast will evaluate each stock in your list in terms of your objective and then tell you how many shares of each stock to buy to maximize your chances of reaching your goal while maintaining risk at an acceptable level.
No. The VE Stock Valuation Model determines current value and current under or overvaluation. The Portfolio Forecast uses its own mathematical and econometric models to allocate capital and intelligently forecast probable risk/return scenarios within your chosen timeframe.
No. No matter what your stock picking style or ultimate investment goal may be, you’ll be able to use Portfolio Forecast to your advantage.
Just as a chess-playing computer will consider several thousand moves before selecting the best one, Portfolio Forecast will run thousands of possible outcomes given the data available for the stocks in your list, and then run tens of thousands of possible capital allocations to select the scenario that best matches your investment objective.
Yes. If you are an aggressive investor, you can ask Portfolio Forecast to maximize your chance of gain, by selecting “Aggressive” in the investment objective box. This choice will lead to a portfolio that has a maximum potential for gain, but is likely to be highly volatile and risky. Conversely, if you are risk-averse, you should select “Conservative” in the investment objective box. This choice will lead to a portfolio that minimizes your potential for loss. When you select the “Moderate” investment objective, Portfolio Forecast will suggest a portfolio that seeks to maximize your potential gain and minimize your loss potential.

Stock Forecast

No. Investors with varying styles and different levels of risk tolerance can all profit from ValuEngine’s forecasting tools.
Predictive variables fall into three classifications: (1) Those related to the stock’s past performance such as its EPS history, past volatility, and historic risk/return levels, (2) The company’s financial fundamentals, e.g. its balance sheets, cash flow history and operating income statements, and (3) indicators of the behavior of the overall markets. ValuEngine’s forecasting models employ proprietary formulas that balance these three classifications of data and also take into consideration macroeconomic factors such as the interest rate climate in which the equity markets operate.. The formulas have been derived from the latest academic research.
Not really. Because the model price derived by the valuation model is a current value for a stock, the and the resultant mispricing percentage play a relatively minor role in forecasting future returns. Forecasting relies more on variable criteria like EPS projections, momentum ranking, and Sharpe ratios as well as on a set of econometric models.
Yes. Each industry has its own forecasting models based on the econometrics peculiar to that industry and which reflect its fundamental characteristics. These models also establish a company’s market position across other businesses within its sector. Forecasting models also change as forecasting horizons move out into the future. For shorter time periods, such as 1-12 months, technical variables dominate, while for longer projections out to three years, emphasis shifts to the company’s financial fundamentals.
First, all available current and historic data is assembled and plugged into our computer program. Then much as a chess-playing computer considers all possible moves before selecting the best one, our program runs thousands of calculations to create a broad landscape of possibilities. It then narrows its selections to determine the probability of various outcomes, such as a stock returning 20% or more or perhaps doubling in price within a certain time frame and so on, while also calculating the risk of loss during that time.
Yes, to the extent that accurate forecasts are possible. Thus far, precise prediction of future events has eluded us. At ValuEngine, however, we have broken new ground in our ongoing effort to isolate, identify, and quantify variables that we have found to influence the rise and fall of stock prices in U.S. and Asian markets. We have tested the interrelationship of these variables and their impact on the value of individual stocks as well as that of whole markets over a fifteen year period. Our research is continuous and aimed at broadening and deepening the scope of our own formulas which strive to reduce the unknowns of stock market behavior. Yet, unforeseen events will always be part of the financial landscape and so risk will always be part of our lives in any marketplace. At ValuEngine.com, we work to reduce it to manageable and acceptable levels and to make our forecasts as accurate as possible.

Portfolio Forecast

First, we make forecasts on the performance of the individual stocks in your portfolio. Next, we simulate thousands of future possibilities for all of the stocks in a given portfolio (while preserving the correlation structure among all the stocks). Finally, based on the allocation of each stock in the portfolio, we compute the portfolio’s projected future returns.
Only slightly. Our Valuation Model-based Mispricing variable is one of the many forecasting variables for a stock’s future returns and probability assessments. Portfolio Forecast relies heavily on other predictors and a set of mathematical and econometric models.
No. Regardless of your stock-picking style, you’ll find many tools on ValuEngine.com invaluable. Our Strategy Library and VE Benchmark Portfolios provide specifics on How to…best identify stocks that fit your preferences for risk and return. Day traders, momentum investors, market-leader investors, the “Don’t label me!” investors, or whoever, can all benefit from the many ValueEngine System tools that were designed to meet your specific needs such as: Advanced Screening, Engine Rating Stocks and Portfolio Advisor etc.

Investment Strategies

ValuEngine Capital Management LLC is a Registered Investment Advisory firm that trades portfolios using ValuEngine.com award winning stock research. For more information on the portfolios and strategies available, please visit www.ValuEngineCapital.com or call (321) 325-0519.
No. In fact, basing buy/sell decisions on any one variable is very dangerous. In this case, many stocks with high momentum rankings are also overvalued. As momentum ranking moves up, the overvaluation may move with it with a concomitant increase in risk. This is exactly the sort of trap that the ValuEngine Stock Valuation Model and its Model Price will help you avoid by integrating eleven variables into the valuation process.
Not necessarily. Despite good fundamentals, an undervalued stock can get stuck in that position for a long time, possibly because of human factors within the company or for any number of other reasons. However, undervalued stocks with a good momentum history could well be winners. Also, check the stock’s forecast return and Sharpe ratio (the risk/return relationship) as part of your decision making process. Use the whole ValuEngine Stock Valuation Model. That’s what it’s there for.