Stock Investing Glossary
The key terms of stock valuation, explained plainly and without jargon. Each term: what it means, why it matters and an example. The exact concepts behind every fair value we calculate.
Fair Value
What a stock is actually worth based on its business, not its share price.
Buy well below it and time is on your side; pay far above it and you are betting on hope.
Example: We put a fair value on 35,000+ stocks, every day.
Try it →Undervalued
When a stock trades below what the business is worth, its fair value.
It is the whole game: paying less than you get. Cheap and good is what compounds.
Example: A stock at 70 with a 100 fair value is 30% undervalued.
Overvalued
When the share price sits well above the fair value of the business.
You can still make money, but you are relying on hope and momentum, not value.
Example: Paying 150 for a business worth 100 leaves no margin for error.
Margin of Safety
The gap between a stock price and its fair value, your buffer against being wrong.
The bigger the discount, the more room your estimate has to be off and still be fine.
Example: A stock 40% below fair value has a large margin of safety.
Quality Score
Our 0 to 100 rating of a business: profitability, growth, balance sheet and moat.
Cheap AND high quality is the rare combination that compounds over decades.
Example: We show quality right next to fair value for every stock.
Try it →Moat
A durable competitive advantage that protects a company profits from rivals.
Wide moats keep a business profitable for decades. We score every stock on it.
Example: Brands, network effects and switching costs are classic moats.
DCF
Discounted cash flow, valuing a company by its future cash brought back to today.
It ties value to the cash a business will really earn, not the market mood.
Example: DCF is one of our 21 valuation models.
Try it →P / E ratio
Price divided by earnings per share, roughly how many years of profit you pay for the stock.
A quick read on how expensive a stock is, but it hides growth and quality.
Example: A P/E of 40 means paying 40 years of current profit.
Try it →Intrinsic Value
The real, underlying worth of a business, independent of its daily share price.
Price is what you pay, intrinsic value is what you get. The two often drift apart.
Example: Our fair value is our estimate of a stock intrinsic value.
Try it →Dividend Yield
The yearly dividend as a percentage of the share price.
It is the cash a stock pays you just for holding it.
Example: A 4% yield pays 4 per year on every 100 invested.
Try it →Free Cash Flow
The cash left after a company pays to run and grow itself.
It is the real money for dividends and buybacks, harder to fake than reported profit.
Example: Strong free cash flow funds dividends without borrowing.
ROE
Return on equity, the profit a company earns on shareholders money.
High, durable ROE is the mark of a strong, efficient business.
Example: A durable 20%+ ROE signals a high-quality compounder.
Bull vs Bear case
The optimistic and the pessimistic view of what a stock could be worth.
Seeing both sides keeps you honest and shows the range of outcomes, not one guess.
Example: We show a bear, base and bull fair value for each stock.
Compounding
Earning returns on your past returns, so growth builds on itself over time.
It is the quiet force behind long-term wealth. Time in the market does the work.
Example: 10% a year doubles your money in about 7 years.
Try it →Frequently asked questions
What is a stock's fair value?
Fair value is a stock's intrinsic worth derived from its fundamentals, independent of the current price. When the price sits below it, the stock is undervalued.
What is a margin of safety?
The gap between price and fair value. The bigger the discount, the more buffer you have if your estimate is off.
Educational glossary, not financial advice. Model estimates are not certainties.