Short, clear answers to the core valuation concepts — the exact models getValue runs on every stock.
A Discounted Cash Flow (DCF) valuation estimates a stock's intrinsic value by projecting a company's future free cash flows and discounting them back to today using the WACC. If the resulting fair value is above the market price, the stock may be undervalued. It is the most fundamentals-driven way to value a business.
There is no single "good" P/E — it depends on the sector and growth. A high-growth tech company can justify a P/E of 30-40x, while a mature utility may trade at 12-15x. The useful comparison is a stock's P/E versus its own history, its peers on the same exchange, and its earnings growth rate.
DCF values the whole business from its free cash flows, while the Dividend Discount Model (DDM) values a stock only from the dividends it pays to shareholders. DDM suits stable, high-payout dividend stocks (banks, utilities, REITs); DCF suits companies that reinvest cash rather than distribute it.
WACC (Weighted Average Cost of Capital) blends the cost of equity and the after-tax cost of debt, weighted by their share of the capital structure. The cost of equity typically comes from CAPM (risk-free rate + beta × equity risk premium). WACC is the discount rate used in a DCF.
The Piotroski F-Score is a 0-9 checklist that measures a company's financial strength across profitability, leverage, and operating efficiency. A score of 8-9 signals a fundamentally strong, improving company; 0-2 signals financial weakness. It is widely used to screen value stocks for quality.
A Reverse DCF flips the standard DCF: instead of estimating fair value, it solves for the growth rate the current market price already implies. It answers "what does the market expect?" If the implied growth looks unrealistically high, the stock may be overvalued — and vice versa.
A Sum-of-the-Parts (SOTP) valuation values each of a company's business segments separately — using the multiple appropriate to each — then adds them up and subtracts net debt to reach a NAV. It is essential for conglomerates and holding companies where one blended multiple hides the true value.
A CF+IRR analysis treats a stock like a bond: it projects the free cash flow you would earn as an owner and solves for the internal rate of return (IRR) at today's price. If that IRR clears your required return, the investment compensates you for the risk.
A normalized P/E smooths earnings across a full business cycle instead of using a single year that may be a peak or a trough. By valuing on mid-cycle or median earnings, it avoids the distortion of one unusually good or bad year — especially useful for cyclical industries.
REITs are valued on Funds From Operations (FFO), not net income, because large non-cash depreciation charges distort earnings. The key metrics are P/FFO (the REIT equivalent of P/E) and the FFO payout ratio, which shows how sustainable the dividend is relative to cash generation.
Intrinsic value, or fair value, is what a stock is actually worth based on the cash the underlying business will generate — independent of the current market price. Investors compare intrinsic value to the market price: buying below it provides a margin of safety.
A margin of safety is the discount between a stock's intrinsic value and the price you pay for it. Buying at, say, 30% below fair value cushions against estimation errors and bad luck. It is the core risk-management principle of value investing, popularised by Benjamin Graham.