How can Tobin's Q be used for stock valuation?

Question

How can Tobin's Q be used for stock valuation?

Answer 1

it depends.  since the numerator in Tobin's Q is the market value of the company's assets, you would generally value the company first, and then calculate your Tobin's Q.

However, say you had a stock in an industry where Tobin's Qs tended to average 1.5, and this was a steady number, etc etc.   you could theoretically back into the market value of the company, which would be equal to 1.5 multiplied by the book value of the companies assets.  Subtract out debt and you've got your equity value right there.