Fair Value Calculator

What is this stock actually worth?

Fair value is not a target price on a chart. It is an estimate of what a rational buyer would pay for the entire business based on its earnings power, growth, and risk profile. Every strategy starts with this number.

Calculate Fair Value in the App

How Fair Value is Calculated

There is no single correct formula. Value investing uses a range of models to triangulate an estimate and then applies a margin of safety to turn that estimate into a buy price.

Earnings Yield Model

Compares the stock's earnings yield (EPS ÷ Price) to a risk-free rate. When the earnings yield is well above the rate you could earn in a Treasury bond, the stock is likely attractively valued.

Earnings Yield = EPS / Stock Price × 100

Free Cash Flow Yield Model

Uses free cash flow per share instead of earnings. FCF is the cash that is actually available to shareholders after capital expenditures, making it a more conservative and reliable measure.

FCF Yield = Free Cash Flow per Share / Price × 100

Graham Number

Benjamin Graham's formula for the maximum price a defensive investor should pay for a stock. Combines EPS and book value per share into a single ceiling price.

Graham Number = √(22.5 × EPS × Book Value per Share)

Discounted Cash Flow (DCF)

Projects future free cash flows over a 5-10 year period and discounts them back to present value using a required rate of return. The most flexible model, but also the most sensitive to assumptions. Small changes in growth rate or discount rate produce large swings in the output.

From Fair Value to Buy Price

Fair value is an estimate. Estimates can be wrong. A margin of safety protects you when they are.

$120

Fair Value Estimate

Based on multiple models

−25%

Margin of Safety

Cushion for estimation error

$90

Buy Price

Your put strike or limit order

Why 25% margin?

Graham recommended buying at two-thirds of fair value for defensive investors. In practice, a 20-30% cushion protects against model error and unexpected business deterioration.

Higher quality = smaller margin needed

A wonderful business with predictable earnings and strong competitive advantages requires less cushion than a mediocre business in a cyclical industry.