Calculate the true value of stocks in seconds!
This is how you calculate the true value of stocks: The „Fair Value Calculator“ is a very simple an quick way to check your stocks on their intrinsic value. By combining Earnings (EPS) and Growth (Revenue Growth) of a company, the true value of a company can be defined. Our Studies have shown that the accuracy of the Fair Value Calculator is 95%* and underpriced stock investments beat the market by more than 15% per year. (*compared to the „Discounted Cashflow Method“.)
Calculate the true value of stocks with diluted EPS and Revenue-Growth:
To calculate the true value of a stock just use this Calculator above. Insert EPS and Growth (Revenuegrwoth in &) to see the Fair Value as result. You can find those two Key Statics in financial websites like Google finance. Just look for the financial numbers for „diluted EPS“ and „Revenue“. You can paste EPS as it is, for revenue you should estimate or calculate the percentage of revenue growth through the last years.
As you find stocks with higher Fair Value than their actual stock market price, investing in those would be the right idea. before investing you should take further investigation to the stock, but a high fair value calculated by this calculator can be a strong hint for a bargain stock.
How to use the Fair Value Calculator
The Fair Value Calculator uses two different financial ratios. With the combination of both ratios a true intrinsic value can be calculated. Follow these instructions to learn how to calculate the true value of a stock.
Step 1: Find the financial ratios
To use the Fair value calculator two financial ratios are necessary. On the one hand the EPS (Earning per share) on the other hand the revenue growth. These two numbers can be found on the company´s website. Most often these ratios can be found under „investors relations“. In every annual report Key statistics and financial data are listed. If you want to calculate many stocks on their intrinsic value, you should use a stock screener or a financial website that provides these informations very easily.
One of the best websites for financial ratios and information to stocks is google invest.
With the use of the search box on the top end of google invest, stock information can be found very quick. Just type in the name of the company and click on the left side „Financials“.
Look for the last years Key ratios for „Diluted normalized EPS„. In the example of Apple this ratio should be 9,22. Now insert this number into the Fair Value Calculator. The second number you need to calculate the intrinsic value of the stock is the revenue growth. Under „Total Revenue“ you can find the last years revenues. Try to identify the revenue growth in percentage. In the case of Apple the Revenue growth from 2014 to 2015 is round about 25%.
Step 2: Paste the Key data into the Fair Value Calculator
Now paste the two financial ratios into the Fair Value Calculator. Under „EPS“ you should paste the „Diluted normalized EPS“. For the factor „Growth“ you should use the calculated revenue growth. In the case of Apple the EPS for the year 2015 is 9.22 and revenue growth is 25%.
Value of EPS & Growth should be 0.1 at least, comma must be expressed as „.“
Now klick the button „Go!“ to calculate. Finished your „Fair value“ is now expressed.
Hints for the use of the Fair Value Calculator:
Hint 1: Use the average of Key datas
If you use the average of the last years a better result can be calculated for the fair value. Try to calculate an average number for „EPS“ and „Growth“.
Hint 2: Diversification
Never put all your money in one stock. You should invest at least in four different stocks in different branches and markets.
Hint 3: Keep 50% margin
Invest in stocks that show an at least a 50% higher intrinsic value than the current stock price.
Hint 4: Small Caps and Mid Caps
Try also to invest in Small & Mid Caps. Small Caps are not so frequently observed and analyzed by Analysts. The probability to find a big margin could be higher in Small Caps. In this case the Debt to Equity Ratio should be lower than 50%. So the total liabilities of the company should be the half of the total shareholder value. With the Fair Value Calculator even Small Caps can be analyzed quick and easy.
Hint 5: Rebalancing
Try to rebalance your portfolio every once in a while.
Note: The use of the fair value calculator is no guarantee for winning in the stock market. Stock markets can be risky and lead to loss of money. The Fair Value Calculator should only be used complementary to your investment strategy.