How We Value Stocks

1. Discounted Cash Flow (DCF)

We project a company's free cash flow over 10 years, then add a terminal value representing all cash flows beyond that horizon. Each future dollar is discounted back to today using the Weighted Average Cost of Capital (WACC).

WACC Derivation

WACC = (Equity Weight × Cost of Equity) + (Debt Weight × After-Tax Cost of Debt). The cost of equity comes from the Capital Asset Pricing Model: Risk-Free Rate + Beta × Equity Risk Premium + any size or country premiums. Default inputs: Rf = 4.25% (10-year US Treasury), ERP = 5.0%, tax rate = 21%. All inputs are editable via the Assumptions drawer (gear icon on any stock page).

Terminal Growth & Forecast Horizon

Terminal growth defaults to 2.5%, roughly matching long-run nominal GDP growth. It is capped at the risk-free rate to prevent the model from producing infinite values. The explicit forecast covers 10 years: years 1–5 use a near-term growth rate, years 6–10 use a fade-down rate.

2. Peer-Based Multiples

We identify 4–6 US-listed peers in the same industry, compute the median trailing P/E ratio, and multiply by the subject company's current earnings per share. This produces a "what would the market pay if this company were valued like its peers?" estimate. Peers are filtered to exclude ETFs, non-US listings, and companies with market cap under $1 billion.

3. Scenario-Weighted Analysis

You set three scenarios — Pessimistic (Bear), Likely (Base), and Optimistic (Bull) — with assumptions for revenue growth, profit margins, and the price investors will pay per dollar of earnings. Each scenario produces an implied price. We weight them by the probabilities you assign (default 25/50/25) to compute a single expected price.

Blended Fair Value

The final fair-value estimate is a weighted average of the three methods above. By default each carries equal weight (33/33/34), but you can adjust the weights on the Valuation or Scenario page to reflect your confidence in each approach.

Data Sources & Refresh Cadence

Market data (prices, financials, analyst ratings) is sourced from Yahoo Finance and refreshed approximately every 15 minutes during market hours. Peer lists use a combination of Financial Modeling Prep data and curated fallback lists for well-known tickers. AI-powered analysis uses Claude by Anthropic.

Limitations & Disclaimers

This tool is for informational and educational purposes only. It is not financial advice. All models rely on assumptions that may not hold — past performance does not guarantee future results. Free-tier data has coverage gaps: some tickers lack insider trading data, institutional holdings, or analyst estimates. The DCF model is highly sensitive to WACC and terminal growth inputs — small changes can materially alter the fair-value estimate.