Knowledge · Core concept
Fair value explained simply
Fair value is a model estimate of what a share is worth under certain assumptions. It is a range, not a single number, and it is not a price target.
At a glance
- It comes from a model (DCF, SOTP, NAV, Graham-Dodd) and that model’s assumptions.
- We always show bear/base/bull. The width of the range shows how uncertain the valuation is.
- Several methods side by side act as a cross-check. If they are far apart, that is a finding in itself.
- Price above base does not mean “sell”. It means the market is pricing in more than our base case.
Formula
Deviation = fair value ÷ price − 1 Example Meta, bear: 325 ÷ 642.62 − 1 = −49%
Worked example 1: Meta, one range (as of Oct 2026)
| Scenario | Fair value | Deviation from price |
|---|---|---|
| Bear | $325 | −49% |
| Base | $643 | ±0% |
| Bull | $1,024 | +59% |
The share price is $642.62, almost exactly on the base case. The range from bear to bull is wide because Meta’s free-cash-flow margin is currently depressed by investment.
Worked example 2: Tesla, three methods (as of Oct 16, 2026)
| Method | Bear | Base | Bull |
|---|---|---|---|
| DCF | $36.5 | $55.7 | $120.5 |
| Sum-of-the-Parts | $28 | $46 | $64 |
| Graham-Dodd | $22 | $45 | $68 |
- The share price of $354.72 is above every model value. Even the highest (DCF bull, $120.5) is still 66% below the price.
- The three methods sit close together. So the gap to the price is not a dispute about method, it is an expectation.
What the number does
- For Meta the price lands on the base case, for Tesla it sits far above every model. Both are context, not a recommendation.
- Tesla’s gap ($354.72 − $55.7 ≈ $299 per share) is what the market apparently pays for future options such as robotaxi, Optimus and AI. The reverse DCF shows what growth that would require.
Pitfalls
- A point estimate suggests false precision. Small changes in growth, margin or WACC move the value a lot.
- Methods look from different angles. A DCF looks at cash flows, a holding valuation at stakes. You compare them, you do not average them blindly.
- The value has a date and goes stale. New figures, new interest rates or a new price change the picture.
FAQ
- Is fair value a price target? No. A price target is an analyst’s forecast of the price in twelve months, fair value is a valuation under assumptions. More on price target vs. fair value.
- Why a range instead of one number? Because the assumptions are uncertain. For Meta, a WACC change of ±2 percentage points alone moves the value between $474 and $956. The range makes that uncertainty visible.
- Which method is right? None on its own. We use the one that fits the business (DCF for cash-flow companies, NAV for holdings, SOTP for groups with different divisions) and check it against a second one.
Further reading
- Analyses: Meta with DCF calculator, Tesla
- Next terms: DCF valuation, Reverse DCF, Price target vs. fair value
Figures from our analyses, see each example for the date. Last updated: Nov 1, 2026.
This content is for information only and is not investment advice. The examples are model calculations based on assumptions and may differ from actual value.