How to Value a Stock: A UK Investor's Guide
Picking stocks without a process is gambling with extra steps. Buffett, Lynch and Terry Smith all run the same six questions. Worked through Apple, in a Sunday afternoon.
Analyst consensus rating bands explained
| Average score | Consensus rating | What it suggests |
|---|---|---|
| 1.0 - 1.5 | Strong Buy | Most analysts very positive |
| 1.5 - 2.5 | Buy | Majority positive |
| 2.5 - 3.5 | Hold | Mixed or neutral view |
| 3.5 - 4.5 | Sell | Majority negative (rare) |
| 4.5 - 5.0 | Strong Sell | Very rare in sell-side coverage |
Sell ratings appear on under 10% of covered stocks. Watch the trend, not just the level.
Key takeaways
Most UK investors are better off in a global index fund, but learning to value stocks makes you a sharper investor either way
Start with the business, not the numbers. If you cannot explain how it makes money in two sentences, you cannot value it
Read financials in this order: revenue, margins, free cash flow, balance sheet, share count
Valuation multiples (P/E, PEG, EV/EBITDA) only mean something once you understand the business and its growth profile