The price fairness rating value is an indicator of whether the listed company's share price at is a fair one, high or low in relation to the company's balance sheet, cash flows and level of profits. A high value rating will indicate that the stock is cheap, while a low rating will indicate that the stock is expensive and therefore not recommended as an investment as long as the stock price continues at the current level.
The following table can serve as a reference for the use of this rating & colon;
|Rating value range||Interpretation|
|0 - 5||The stock is quoted at a price above its fair price||5 - 7||The stock is quoted at its fair price|
|7 - 10||The stock is quoted at a price below its fair price|
From an investor point of view, price, together with solvency and profitability, is one of the three main variables to take into account in any investment decision making. The main tenet of the Value Investing philosophy, which is behind many algorithms that Gradement employs for the calculation of its ratings, is to invest in companies whose price is sufficiently low with respect to the calculated fair price of the company, so that we have what, in this philosophy, is called a safety margin.
This margin of safety covers the investor from this risks:
A price fairness rating above 7 provides this security margin on the investment.
The value of this rating is based on a comparison of the price at which the stock is currently quoted with the following three magnitudes: