Generally speaking, ‘valuation’ can be defined as the process for finding the ‘value’ of anything. In the world of finance, value of anything (tangible or intangible) would be reflected by the price that potential buyers and sellers agree to conduct the transaction for the transfer of ownership, which may obviously change with time. The demand and supply for are the drivers of the process of ‘price discovery’ of any asset in any market.
In general, price multiples – P/E ratio, price-to-book-value, and so on – are used for relative value comparison, not absolute value. That is, a company’s price multiples are generally compared to those of similar companies to determine whether the company’s stock is overpriced, fairly priced, or underpriced compared to the stock of its peers