CFT in trading, based on the provided reference, represents an estimate of a stock's true or intrinsic price, derived from valuation models.
This estimated "true" price is determined through various methods, typically involving fundamental analysis. The goal is to ascertain what a stock should be worth, independent of its current market price. These methods include:
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Discounted Cash Flow (DCF) Models: These models project a company's future cash flows and discount them back to their present value to determine the intrinsic value of the stock. The underlying principle is that a company is worth the present value of its future cash flows.
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Peer Valuation Multiples: This approach compares a company's valuation ratios (e.g., Price-to-Earnings ratio, Price-to-Sales ratio) to those of its peers within the same industry. If a company's ratios are significantly lower than its peers, it might be considered undervalued.
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Dividend Discount Models (DDM): These models value a stock based on the present value of its future dividend payments. DDMs are particularly useful for valuing companies that consistently pay dividends.
In essence, CFT (calculated fair target) represents a trader's or analyst's best assessment of a stock's real value, derived from rigorous analysis rather than just market sentiment or short-term price fluctuations. It serves as a benchmark against which the current market price is compared, informing trading decisions. If the market price is significantly below the CFT, the stock might be considered a buying opportunity, and vice versa.
