BOSTON (TheStreet) -- So what's that stock in your portfolio really worth, when all the hype and speculation is put into a historical perspective? A new online tool helps investors and advisers evaluate whether a given stock is reasonably valued and priced given current market conditions.
devoted more than six years to the research and development of
, a stock-evaluation service that launched in February. Its tools evaluate whether risk is being priced correctly into a stock by demonstrating how the market is systematically rewarding and penalizing prices at any point in time.
"During our careers on Wall Street, we've found that valuations are often highly subjective and inconsistent with the valuation of other companies currently trading in the marketplace, as well as historical precedents," says Chief Executive Officer Jonathan Greenberg, a former Salomon and Lehman banker and one of the company's founders. "This makes it challenging to determine the true, objective value of a company, especially in a volatile market."
Market Topographer evaluates stocks based on 12 factors, qualifying each as a "pro" or "con" and ranking them based on the magnitude of their impact given market conditions. It allows users to compare companies in different industries over varying time periods. Based on its analysis, a company trading at 15 times earnings may actually be cheaper than a company trading at eight times. The online tool also demonstrates how stocks with a similar risk profile would have been priced historically. Users can see whether historical precedents support the expectations of a stock by comparing it with the performance of relevant companies over time.
Greenberg says the initial inspiration for Market Topographer came in the 1990s, when he was evaluating the energy industry as it was undergoing deregulation. As a M&A banker in the era of tech bubbles, he struggled to get a grip on the "real valuation" of the companies he researched.
"The word on the street for companies in all industries was that the way you were going to get a premium valuation is to basically reshape and remold yourself as a 'new economy company,'" Greenberg says. "In the power sector, you saw companies changing their names from stale, old boring names to more jazzy cutting edge names. Commonwealth Edison became known as Unicom. Northern Indiana public service became NiSource. Brooklyn Union Gas became MarketSpan and that didn't work, so they became KeySpan. Parties would cut their dividends and reinvest the money in the business, because they had to achieve higher growth. They had to be able to tell a story that they could achieve higher growth to justify higher valuation."
In 2003, with the memory of how this maneuvering made benchmarking so difficult, Greenberg left banking and formed a think tank that would later evolve into his current company.
"If you are paying a price today to bet on the future of a company, one of the best ways to get your hands around what that future might look like is to draw from other examples throughout history," he says. "The real quant jocks and some of these proprietary trading shops have been doing very rigorous statistical analysis. We've taken some of those concepts and, in essence, packaged it and created applications."
Market Topographer is designed for institutional investors, but the company will soon offer a version for individuals.
-- Reported by Joe Mont in Boston.