Valuation is more of an educated guess than an exact science. Valuation is the assigning of an accurate value, or price, to an individual stock.

Honestly there is no single correct price, in fact the concept of valuation is theoretical.

Valuation however is an important guide to know what price to pay for a stock, bond or ETF.

If you overpay for a stock, then you will likely lose money over the longer term.

P/E (price to earnings ratio is one way to value a stock), however it is not the only way.

Many Hedge Funds, Brokerages and large scale investors have developed complex mathematical equations to try and place accurate values on stocks.

As you can see it is not as easy as it looks to accurately value stocks, to complicate matters, the fair value of a stock will fluctuate over time.