Stock valuation explained simply
Here we explain the terms that appear in our analyses. Every page shows a formula, a worked example with real numbers and the typical pitfalls.
Basics
Fair value
Why we show a range instead of one number, and what the gap to the share price tells you.
Term explainedCAPM / cost of equity
How interest rate, beta and market premium become the return shareholders demand.
Term explainedTerminal value
Why more than half of a DCF value usually sits in the terminal value, and how strongly g moves it.
Term explainedMethods
Reverse DCF
The calculation run backwards: which assumptions make a DCF land exactly on the share price?
Term explainedSum-of-the-Parts
How to split a group into its divisions and value it part by part. Example: Alphabet.
Term explainedNAV discount
Why holding companies trade below their asset value on the stock market.
Term explainedMargin of safety
The gap between price and value as a buffer against your own mistakes, with Graham’s formula.
Term explainedValuation without profits
What to do when P/E and DCF fail? Sales multiples, future years and divisions. Example: SpaceX.
Term explainedPut it in context and test it
Price target vs. fair value
Why an analyst price target says something different from a valuation, and what that means for “stock forecast”.
Term explainedBacktest
Why the most impressive hit rate often has the thinnest data, with examples from our analyses.
Term explainedMore terms
All examples are model calculations, not investment advice.
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