Valuation Models We Use: Discounted Growth, Cap Rate & Payback Time

You wouldn’t buy a house without checking the rent potential, comparing similar sales, and asking how long it would take to pay off the mortgage. Valuing stocks works the same way — you need multiple ways to see if the price makes sense.

At Wall St Yardie, we keep it simple with three conservative, real-world models. Each one fits a different type of business, and all three are built into calculators inside the WSY App.

TL;DR

• Three WSY models: Bad Man Forward (earnings growth), Big Up Yield (cap rate/earnings yield), and Money A Run (payback time).
• Each one is conservative: All three bake in a margin of safety and use disciplined, discounted assumptions.
• Company-type fit: Bad Man Forward works best for growing companies, Big Up Yield for mature earners, and Money A Run for free cash flow machines. Together, they help us match the right model to the right business.
• Decision rule: We don’t average — we take the highest valuation of the three, since each is already discounted. That way, we can act on the price that best fits the kind of company we’re evaluating.
• Straightforward math: No wicked spreadsheets. Our tools/calculators in the WSY App handle the work.
• Toppa Top takeaway: These models give yardie investors a clean, reliable way to size up companies and avoid overpaying, ensuring you get a deal.

Model 1: Bad Man Forward (Earnings Growth Model)

Traditional DCF projects cash flows into infinity (fi eva). That’s messy and fragile. At WSY, our Bad Man Forward model focuses squarely on earnings growth — how profits compound over time and calculates what that’s worth today.

We use ACTUAL financial statements, earnings per share (EPS), apply a reasonable growth rate (based on our analysis), calculate the price 10 years from now and then discount it back with a Margin of Safety. This keeps the math grounded and avoids “fantasy prices.”

When to use it:

• Growth companies with clear future growth
• Businesses with reinvestment opportunities that will bring growth
• Cases where earnings visibility is solid for 5–10 years

Example:

• EPS today: $5
• Growth forecast: 10% per year for 10 years
• Discount rate: 15%
• MOS: 50%

In year 10, EPS grows to about $13 if we grow at 10% per year. Multiply by a conservative PE (say 20, 2x the growth rate), discount it back using a 15% return on investment each year because this is what we want to make, and then we cut discount that once more with a 50% margin of safety. You might land around $64 fair value and a buy price of $32. If the stock trades at $25, that’s an opportunity.

Key insight: Bad Man Forward is the best lens for growth, but tiny tweaks in the growth rate can swing the value dramatically. That’s why we always layer in a Margin of Safety.

Read more about Margin of Safety →

Model 2: Big Up Yield (Equity Yield)

Think of this as the stock market’s version of a rental property’s cap rate. Instead of “what’s the rent vs. purchase price,” we ask: what earnings am I getting vs. the market cap?

This is essentially a Warren Buffet style — quick, clean, and powerful for steady earners. Buffet identified that there are companies that return a great yield (cash returns) but they also appreciate in price (equity). This means you get to collect the return like rent on a house while still benefiting from the appreciation of the price of the stock, just like house prices rise over time.

When to use it:

• Mature, stable companies
• Businesses with consistent solid return on investment or dividends.
• Fast valuation checks

Example:

• Net income: $400M
• Maintenance CapEx: $50M
• Adjusted owner earnings: $350M
• Required yield: 10% (like asking for a 10% return)
• Shares: 100M

Intrinsic value = $350M ÷ 0.10 = $3.5B
Per share = $35

If the stock trades at $25, that’s a 29% discount.

Key insight: Big Up Yield keeps you grounded. It doesn’t assume growth, so it’s conservative by nature. Perfect for cash cows and “boring” businesses that quietly compound wealth.

Read more on earnings power and cash flow →

Model 3: Money A Run (Time to Purchase The Entire Company)

Here we ask a simple, gut-check question: How long will it take to buy the whole company, if I use free cash flow of the company?

Most analysts and business textbooks tell you it should take 12–16 years to cover the cost of a business using the free cash flows. Our calculation cuts that time in half to determine the fair value price of the company. If the business can return your investment in under a decade, it’s usually undervalued.

When to use it:

• Cash-generative “machines”
• Screening large stock lists quickly
• Sanity checks alongside other models

Example:

• Free cash flow: $500M
• Market cap: $3.2B
• Time to Return Investment = $3.2B ÷ $500M = 6.4 years

That’s comfortably under 10 years. If our other homework checks out, this could be a strong buy.

Key insight: Money A Run strips out the noise. It tells you in plain terms if the company’s cash engine is strong enough to justify the price.

How We Use All Three

Here’s the WSY twist: we don’t triangulate or average. We take the highest of the three valuations because each one is already conservative and discounted, it also allows us to match the appropriate price to the type of company we are looking evaluating.

• Bad Man Forward shines for growth
• Big Up Yield grounds you in steady earnings
• Money A Run keeps cash flow discipline front and center

Whichever comes out on top sets the ceiling we’re willing to pay. From there, we demand a margin of safety before pulling the trigger.

Learn how we think about intrinsic value →

What Could Go Wrong?

• Over-relying on one model: Growth models can overpromise; yield models can undercount growth.
  Mitigation: Run all three, then compare.

• Garbage inputs: Unrealistic growth rates, too-low discount rates, or ignoring maintenance CapEx make every model useless.
  Mitigation: Keep assumptions conservative.

• Forgetting quality: A stock can look cheap but still be a bad business.
  Mitigation: Always pair valuation with qualitative checks (moats, management, industry, and how the market feels about the company aka Sentiment).

• False precision: Don’t treat $47.23 as gospel. Valuations are ranges, it get's you in the ballpark.
  Mitigation: Round numbers, use MOS, stay humble.

Next Steps

• Try each calculator in the Wall St Yardie App: Bad Man Forward, Big Up Yield, Money A Run
• Run 2–3 companies you know well through all three models
• Compare which model fits each business type best (growth, mature, cash machine)
• Note how assumptions like growth rate and discount rate swing valuations
• Keep a simple journal of your fair value ranges vs. actual stock performance

👉 Want a shortcut? We’ve already applied these three valuation models across the market inside the Wall St Yardie App. Explore the stock universe, see our fair value ranges, and find Toppa Top companies trading on sale today.

Remember: These models aren’t crystal balls. They’re decision tools that help you think like an owner, apply discipline, and avoid overpaying. With WSY’s “Bad Man Forward,” “Big Up Yield,” and “Money A Run,” you’ve got a Toppa Top toolkit that balances growth, yield, and cash flow — no Wall St wizardry required.