All great events always begin with a small action. Great fires are started from sparks and trillion dollar companies begin in a garage. One such great event for us is the introduction of our fair value calculator to you our audience and fellow stock market enthusiasts.
What began as a pet project for a doctor far removed from finance is now a collection of tens of thousands of stock market adventurers from around the globe engaged in the pursuit of that one True Value. Each adventurer not less than a Knight of the Round Table, we now call upon you, our readers to join our round table and begin your own adventure in the world of fair value investments where intrinsic value of a stock is to be sought and dangers of overvaluation to be battled.
To all our readers who have been following the article series so far, welcome back. To those that are reading this first, feel free to explore the entire series from the start as we take you on the journey to understand what is value, the value of a stock, impact of growth rate, number of shares, cash flow, purchase price per share, earnings growth, earnings per share and myriad other terminologies.
The journey as all the great ones do, began with a small motivation, the desire to hunt. The way humans hunt for parking is very similar to the way animals hunt for food. That desire may have been mellowed down as we became civilized but the basic instincts remain. For anyone with even some awareness of self, it is known that instincts are something that can never be eliminated or controlled.
The instinct for hunting is channeled in various ways. The rich actually undertake the act of hunting via licenses and permits and taking trips to the jungles to hunt wild game whereas the not so rich tend to satisfy that instinct via the hunt for bargains.
Human beings are suckers for bargains. This intense desire to score a bargain is what leads to the concept of value. Value is the perception of the worth of a product, service or experience realized to us. In simple terms, value is the economic worth derived by you from a product or service after paying for it. Two identical meals might have the exact same ingredients and proportions but may be experienced differently depending on whether it was made by a master chef or your neighboring cafe.
Consequently, the price you pay for both the experiences will be different and the worth that you feel for those experiences is value. I might feel a meal by a master chef would be worth $100 but that exact same meal with same ingredients at the road side diner might not be worth more than $20. This is value in its simplest terms.
Combining your basic instinct of hunting with a desire to gain value is a sure shot way to success. The most successful people in the world have done exactly that. Combine your hunt with something that will help you gain value and you will be ahead of the rest of the pack who are struggling with dealing with those same instincts.
The world's best auditors direct their hunt towards discrepancies in numbers which helps them provide value to their clients and in return make a lot of money for themselves. The same can be applied to any venture or profession. Headhunters hunt for employees, sportsmen hunt for adrenaline and your humble postman hunts for your address to deliver your letters.
For those that have no special skill in hunting, there is a democratic jungle out there where anyone with some emotional control and us on their side can succeed. The jungle is the stock market and what you are hunting for is intrinsic value in the market price.
Value investing is the investment in companies or a company's stock at a price per share lesser than the value derived from that share. The difference is your profit. Various fundamental analysis come into play with future financial stability, eps, earnings per share data, growth, ratio, dividend and return are estimated.
Value investing has enjoyed historical success with pioneers like Benjamin Graham to modern day proponents like Warren Buffett, Joel Greenblatt and John Templeton. Unlike the current fad of chasing meme stocks or cryptocurrencies, stock value investing online reduces your risk by providing for a margin of safety or percentage of safety.
We at fairvalue-calculator.com are magicians. However unlike traditional magicians, we are more than happy to reveal our secrets. Remember, we are knights at the round table. There is no secret between us. We began our series with a demo of how we go about finding undervalued stocks. We highlighted two of our methodologies and actually discovered undervalued stocks in them: Target, Prudential Financial, Apple and Alphabet (Google) amongst others.
Stock markets are highly irrational and no one can predict a stock's behavior. In fact, all stocks behave differently under various circumstances and that is what makes successful investment a challenge. No amount of model or selling can help you determine value stocks with certainty.
What can help however is revenue, profit and cash. That combined into various financial ratios that look to the future, reflect the business, incorporate growth of the company and on an average have a valuation that we can compare with others to determine where to invest.
Financial ratios help determine relative valuation of listed companies using book value per share, stock price, share price, earnings per share and other financial data to determine valuation of the company/companies.
The secret is not in which financial ratios to use but how to use them. We use commonly found financial ratios, but we add our own flavor to them here at fair value so that we can accurately determine true value or intrinsic value.
For an investor to achieve financial success requires assets, reasonable finance knowledge, personal equity, values, related business and an eye for the future. It takes years and several costly mistakes before one becomes an expert. Alternatively, we welcome you to become a premium member and learn from our mistakes so that you don't sell yourself short and don't incur costly mistakes.
In the real value article, we went through a live example to highlight how appearances can be deceptive and common investor follies. The focus must always be on a top down approach, looking at the countries that will benefit in the future, the rate at which their industries will grow, headwinds and tailwinds estimate, assets, on site analysis and other finance stuff.
This was followed by identification of industry leaders, future outlook, business strength, return generated, sign of legal trouble, management quality and the analysis. A real life example was taken into consideration of a company that was net profitable and we at fair value showcased how to find real value of the stock today simply and easily via our premium membership, saving you the hassle of the time spent by investors to calculate all the ratio, determine growth and eps and book value per share.
Intrinsic value is our next secret. While very much similar to real value, we introduce elements of direct valuation as compared to relative one which played an important role in determining real worth of the stock.
Fair value of a stock or intrinsic value of stock can be determined by direct methods like Discounted Cash Flow and Graham Number as well. In this article, we highlighted intrinsic value vs current traded price of stocks which went to show how one must buy those trading at fair values in order to earn a decent return but forget return, in order to not lose money.
Discounted Cash Flow or DCF as the name suggests is a valuation model dependent on cash flow to determine intrinsic value of share price. It is entirely dependent on assumptions of growth, company strength, earnings growth and fair earnings per share, company's stock stability and other features. The amount of assumptions itself makes DCF highly inaccurate and subjective and generally it should be one reference point to begin ratio work and not the end of it.
Graham number was devised by Benjamin Graham who was the father of value investing. His formula takes into account earnings per share and book value per share to calculate the share price of a company which is known as the graham number. If the market traded price of that company is less than the graham number that you calculate, the company is undervalued and investors must acquire it. If the market traded price is more than the graham number that you calculate, investors must exit their investment.
We at fair value provide you with tons of calculators both free and paid to do all this work for you. This along with our premium dashboard makes for a simple and easy investment process where we calculate all for you using our calculator and you simply have to decide the company stocks that you want to invest in.
Fundamental analysis can be a complicated affair only if we let it be. Book value calculator, ratio calculator, earnings growth, dividend calculator, cash calculator, revenue ratio and other ratio are automatically computed so that you do not have to spend time on that and instead can sit back and relax and let your money work.
Now that you know what is the intrinsic value of stocks, real value of stocks and how to determine fair value of stocks using cash, revenue, fundamental, assets, purchase values, equity values and related stock's financials, let us now look at how to find them and where to find them.
This is the squid game portion of the hunt but unlike the shows, you are on the eliminating side. You place a series of tests for your stocks to clear through, discarding those that do not pass and rewarding those with your investments that make it through to the end.
This stage is the major filter for your stocks. We can help with that. Our premium dashboard provides you with a list of sector that are undervalued and overvalued with green being undervalued and red being overvalued.
The movement begins with a logical deduction wherein you take in current events and narrow down to sectors that compare with our sector analysis. For e.g. in pandemic, USA suffered the most with incessant lockdowns leading to people looking for entertainment and thus moving to television and streaming.
Lick the edges away
The streaming giants like Amazon and Netflix are widely known and no value will be found there. What one has to look at is the hidden sectors and that is what we have done (refer the article on finding value stocks).
At fair value, we calculate various numbers and using our myriad range of calculators we provide deep analysis and insights into such hidden gems from time to time. As our premium member, you will be the first to access those reports and even ask us any questions about it should you choose to do so.
We also provide ratings that will summarize the above analysis for you allowing you to get the overview at a quick glance and leaving you with the ability to deep dive at your leisure.
Finally we arrive at the future value of stocks. We now know about fair value, intrinsic value and real value. We have also calculated various ratios for you and the calculated ratios are available on your premium dashboard for your portfolio stocks.
The future value of stock lies in the ability to predict earnings and that is where the leap of faith arrives. Human beings are notoriously bad at predicting the future but nonetheless we are fascinated with it and time travel.
There is no sure shot way to estimate the future earnings, book value, fair earnings ratio, market movement, eps, fundamental of business, average rate or other stuff about companies. What can be done however is to make a fairly accurate guess and provide for a margin of safety related to that guess.
Since you have already done the analysis to determine the stock to buy, go one step further and try to estimate forward earnings of that stock for just one or two years. Can be done in a lot of cases with fairly accurate estimates as even company management tends to provide some guidance numbers in their earnings calls.
Revenue is the easiest to predict as compared to profits and using revenue and price to sales ratio, one can determine the future value of stock. Refer the article to understand this in detail but if one can calculate the forward earnings, using ratio, one can also compute the value of the stock in the future when that revenue will be realized.
Our premium membership allows you to become a knight at our round table and knights always look out for each other. We are here to help you realize your investment goals and most importantly, hold you and save you when you fall.
Use our premium dashboards and advanced algorithms to build a portfolio with a wide safety of net in such a way that market upside is assured while market downside is protected to the maximum extent. Buying stocks well below fair value ensures that you don't have to sell them in a panic and can hold on to the stocks for a long term which is when wealth is created.
So come, take up our premium membership and become one of our fellow knights and together we shall conquer the kingdom of stock markets, making ourselves wealthy in the process. My Knights, to the premium dashboard then.
Disclaimers: fairvalue-calculator.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on fairvalue-calculator.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The experts may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall fairvalue-calculator.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on fairvalue-calculator.com, or relating to the use of, or inability to use, fairvalue-calculator.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. With the Use of the Portfolio Manager you don´t actually buy stocks with real money. You just get the Information of how a stock portfolio could be compiled. To follow the instructions on this side is no guarantee for success on the stock market. Stock investments are risky and can cause financial damage or lead to money losses.