Stock Valuation
⚠️ Data Verification — Do This Before Any Analysis
Before running any analysis, always retrieve the latest market data for the ticker:
- Fetch current price — use web search or ask the user for the live price, 52-week range, and market cap. Never assume a price from training data.
- Confirm key figures — recent earnings, revenue, key ratios (P/E, P/S, etc.) as applicable to this skill.
- State your data source — fill in the
Data & Sourcesheader (next section) so the origin, as-of date, retrieval path, and confidence of every figure are explicit at the top of the output. - Flag stale data explicitly — if live data is unavailable, display this warning before proceeding:
⚠️ Live data unavailable. The following analysis uses training-data estimates which may be significantly out of date. Verify all prices and metrics before making any decisions.
Never silently substitute training-data estimates for current prices. When in doubt, ask the user to paste the latest quote.
📋 Data & Sources Header — Open Every Output With It
The first thing in the output is this provenance block, filled in — never left as placeholders. It is the standard documented on the Data & Accuracy page and the first thing result-validator looks for:
Data & Sources As of: <date the figures represent, e.g. 2026-06-30> Source: <primary docs — SEC EDGAR 10-K/10-Q, company IR, FRED, exchange data …> Retrieval: <pasted by user | web/tool retrieval | model memory> Confidence: <HIGH | MEDIUM | LOW>
Retrieval: model memorymust be paired withConfidence: LOW— memory is a placeholder until confirmed against a primary source.- Mixed sources: list each with its own as-of date rather than blending them.
- Sources disagree on the same figure (a closing price, a deal term): prefer the primary source (SEC filing, company release, exchange data) over an aggregator, then the most recent dated one. Show both values with their sources and dates, say which you used and why, and never average them.
- Data the user pasted is reported as
pasted by user; do not upgrade its confidence beyond what the user's own source supports.
Derive a rigorous intrinsic value estimate using multiple independent valuation methodologies, then triangulate to a single probability-weighted target price. Never rely on a single method — cross-validation across DCF, comparable company analysis (CCA), EV/EBITDA, and residual income models builds conviction and exposes assumption fragility.
Overview
Valuation is an art grounded in financial science. Each method has strengths and weaknesses depending on the business type, stage of maturity, and data availability. This skill applies four to five valuation methods, then reconciles them into a football field chart to show the implied value range. Wherever there is consensus across methods, conviction is high. Where methods diverge significantly, that gap tells you something important about market expectations.
When to Use Each Method
Valuation Method Best For Avoid For ──────────────────────────────────────────────────────────────────────────────────── DCF (Free Cash Flow) Mature, FCF-positive businesses Pre-revenue, banks, REITs Comparable Company (CCA) Any publicly traded company No good public comps EV/EBITDA Multiple Capital-intensive industrials Asset-light, high-SBC tech Price/Earnings (P/E) Stable earnings businesses Negative earnings Price/Sales (P/S) Revenue-stage growth companies Mature high-margin businesses EV/Revenue High-growth, low-margin SaaS Mature, cyclical businesses Residual Income (RI) Financial companies, book-value Asset-light businesses Dividend Discount (DDM) Dividend-paying value stocks Growth stocks, no dividend Asset-Based NAV Real estate, holding companies Operating businesses ────────────────────────────────────────────────────────────────────────────────────
Method 1: Discounted Cash Flow (DCF)
Step 1: Base Financial Metrics
Collect trailing twelve months (TTM) data:
Base Metrics: Revenue (TTM): $___M Operating Cash Flow (TTM): $___M Capital Expenditures (TTM): $___M Free Cash Flow (TTM): $___M (OCF - Capex) FCF Margin (TTM): ___% Stock-Based Compensation (TTM): $___M True Economic FCF (SBC-adjusted): $___M Diluted Shares Outstanding: ___M Net Debt / (Net Cash): $___M Effective Tax Rate: ___%
Step 2: Three-Scenario Projections (10-Year)
Scenario Assumptions: Bull Base Bear Probability: 20% 60% 20% Revenue CAGR Y1-5: ___% ___% ___% Revenue CAGR Y6-10: ___% ___% ___% FCF Margin Y5: ___% ___% ___% FCF Margin Y10: ___% ___% ___% WACC: ___% ___% ___% Terminal Growth Rate: ___% ___% ___%
Step 3: WACC Calculation
Cost of Equity (CAPM): Risk-Free Rate (10Y Treasury): ___% Beta (5-year monthly): ___ Equity Risk Premium: ___% Size Premium (if applicable): ___% Cost of Equity: ___% = Rf + β × ERP + Size Cost of Debt: Interest Expense (TTM): $___M Total Debt: $___M Effective Interest Rate: ___% Tax Rate: ___% After-Tax Cost of Debt: ___% Capital Structure: Equity Market Cap: $___M Total Debt: $___M E/V (Equity Weight): ___% D/V (Debt Weight): ___% WACC = Ke × (E/V) + Kd × (D/V) = ___%
Step 4: DCF Valuation Table
10-Year FCF Projection (Base Case): Year Revenue ($M) FCF Margin% FCF ($M) Discount Factor PV of FCF ($M) 1 ___ ___% ___ ___ ___ 2 ___ ___% ___ ___ ___ 3 ___ ___% ___ ___ ___ 4 ___ ___% ___ ___ ___ 5 ___ ___% ___ ___ ___ 6 ___ ___% ___ ___ ___ 7 ___ ___% ___ ___ ___ 8 ___ ___% ___ ___ ___ 9 ___ ___% ___ ___ ___ 10 ___ ___% ___ ___ ___ ──────────────────────────────────────────────────────────────────────────────────── Sum of PV (FCF 1-10): ___ Terminal Value = FCF10 × (1+g) / (WACC-g): ___ PV of Terminal Value: ___ Enterprise Value: ___ Less: Net Debt: ___ Equity Value: ___ Diluted Shares: ___M DCF Intrinsic Value per Share: $___ TV as % of EV (flag if >75%): ___%
Step 5: Sensitivity Table
Intrinsic Value per Share — WACC vs. Terminal Growth Rate Terminal Growth Rate WACC 1.0% 1.5% 2.0% 2.5% 3.0% 6.0% $___ $___ $___ $___ $___ 7.0% $___ $___ $___ $___ $___ 8.0% $___ $___ $___ $___ $___ ← Base Case 9.0% $___ $___ $___ $___ $___ 10.0% $___ $___ $___ $___ $___
Method 2: Comparable Company Analysis (CCA)
Select 5–8 comparable public companies based on:
- Same industry and sub-industry
- Similar business model (SaaS vs. perpetual license, etc.)
- Similar growth profile (high-growth vs. mature)
- Similar size (market cap within 0.5–2.0x range preferred)
Comparable Company Table
Comparable Company Multiples: Company Mkt Cap EV/Rev EV/EBITDA P/E (FWD) P/FCF EV/FCF Rev Growth% EBITDA Mg% Target ___ ___ ___ ___ ___ ___ ___% ___% Peer 1 ___ ___ ___ ___ ___ ___ ___% ___% Peer 2 ___ ___ ___ ___ ___ ___ ___% ___% Peer 3 ___ ___ ___ ___ ___ ___ ___% ___% Peer 4 ___ ___ ___ ___ ___ ___ ___% ___% Peer 5 ___ ___ ___ ___ ___ ___ ___% ___% ─────────────────────────────────────────────────────────────────────────────────────────────────── Peer Mean ___ ___ ___ ___ ___ ___ ___% ___% Peer Median___ ___ ___ ___ ___ ___ ___% ___%
CCA Implied Value
Apply peer median multiples to the target's metrics:
CCA Valuation: Metric Target Value Peer Median Multiple Implied EV ($M) Implied Price Weight EV/Revenue $___M Rev ___x $___ $___ 25% EV/EBITDA $___M EBITDA ___x $___ $___ 25% P/E (Forward) $___ EPS ___x n/a (equity) $___ 25% EV/FCF $___M FCF ___x $___ $___ 25% ────────────────────────────────────────────────────────────────────────────────────────────────── EV-based rows: Implied Price = (Implied EV − Net Debt − Minority Interest + Non-operating Assets) ÷ Diluted Shares P/E row: Implied Price = Peer Median P/E × Target EPS (already a per-share equity value — no EV bridge) The weighted average below is taken over the Implied Price column only. CCA Weighted Average Implied Price: $___ Premium/Discount Applied (for size, quality): ±___% CCA Adjusted Implied Price: $___
Premium/Discount Adjustment Factors:
- Apply a +10–20% premium if the target has: superior growth, higher margins, stronger balance sheet
- Apply a -10–25% discount if: smaller/less liquid, weaker fundamentals, regulatory overhang
Method 3: EV/EBITDA Multiple Valuation
Simple multiple-based valuation used primarily as a sanity check:
EV/EBITDA Valuation: TTM EBITDA: $___M Forward EBITDA (NTM): $___M Historical EV/EBITDA Average: ___x (5-year own history) Peer Median EV/EBITDA: ___x Sector Median EV/EBITDA: ___x Conservative Multiple (peer discount): ___x Base Multiple (peer median): ___x Premium Multiple (peer premium): ___x Conservative Implied EV: $___M → Per Share: $___ Base Implied EV: $___M → Per Share: $___ Premium Implied EV: $___M → Per Share: $___ Net Debt/(Cash): $___M Shares Outstanding: ___M
Method 4: Price/Earnings (P/E) Valuation
For companies with stable, growing earnings:
P/E Valuation: TTM GAAP EPS: $___ NTM Consensus EPS: $___ 2-Year Forward EPS: $___ Historical P/E Average (5yr): ___x Peer Median P/E (NTM): ___x S&P 500 P/E (NTM): ___x [for context] PEG Ratio (NTM P/E / Growth): ___ [<1.0 = undervalued, >2.0 = expensive] Conservative P/E (10% discount to peer): ___x → Implied Price: $___ Base P/E (peer median): ___x → Implied Price: $___ Premium P/E (10% premium to peer): ___x → Implied Price: $___
Method 5: Residual Income / Economic Value Added
For financial companies or businesses where book value is meaningful:
Residual Income Model: Book Value per Share (current): $___ Cost of Equity (Ke): ___% Expected ROE (avg next 5 years): ___% Residual Income (ROE - Ke) × BV: $___ Justified P/B = 1 + (ROE - Ke) / (Ke - g) = 1 + (___ - ___) / (___ - ___) = ___x Book Value per Share: $___ Justified P/B: ___x Residual Income Implied Price: $___
Football Field Summary — Valuation Range
Present all methods together in a football field chart:
Football Field Valuation Summary — [TICKER] Current Market Price: $___ Method Bear (Low) Base (Mid) Bull (High) Confidence ──────────────────────────────────────────────────────────────────────────────────── DCF — Bear/Base/Bull $___ $___ $___ HIGH/MED/LOW CCA — Peer Multiples $___ $___ $___ HIGH/MED/LOW EV/EBITDA Multiple $___ $___ $___ HIGH/MED/LOW P/E Multiple $___ $___ $___ HIGH/MED/LOW Residual Income (if used) $___ $___ $___ HIGH/MED/LOW 52-Week Range $___ ───────── $___ [Market] Analyst Consensus $___ $___ $___ [Street] ──────────────────────────────────────────────────────────────────────────────────── COMPOSITE INTRINSIC VALUE $___ $___ $___ Visual Football Field: $[low] |────────[bear range]────|────────[base range]────|────────[bull range]────| $[high] ▲ Current Price $___
Composite Valuation Calculation
Method Weighting (adjust based on applicable methods): DCF Valuation: ___% weight Implied: $___ CCA (Comps): ___% weight Implied: $___ EV/EBITDA Multiple: ___% weight Implied: $___ P/E Multiple: ___% weight Implied: $___ Residual Income: ___% weight Implied: $___ ───────────────────────────────────────────────────────── Composite Weighted IV: $___ Current Market Price: $___ Margin of Safety: ___% (discount to IV) Upside/Downside Potential: ___%
Margin of Safety Framework
Margin of Safety = (Intrinsic Value − Market Price) / Intrinsic Value × 100% Assessment: >30% discount to IV → Compelling value — strong margin of safety 10–30% discount → Fair value — reasonable entry 0–10% discount → Fairly priced — limited margin of safety 10–30% premium → Slightly expensive — requires growth conviction >30% premium → Expensive — priced for perfection >50% premium → Very expensive — significant risk of multiple compression Investor Type Minimums: Deep Value: 25–35% margin of safety required GARP: 10–20% margin of safety Growth: 0–10% (or slight premium for high-quality growth) Momentum: Not applicable
Risk-Adjusted Expected Return
Calculate the expected return across scenarios:
Expected Return Analysis: Scenario Probability Price Target Return vs. Current Expected Return ──────────────────────────────────────────────────────────────────────────────── Bull ___% $___ +___% ___% contribution Base ___% $___ +/-___% ___% contribution Bear ___% $___ -___% ___% contribution ──────────────────────────────────────────────────────────────────────────────── Probability-Weighted Expected Return: ___% Risk/Reward Ratio: [Bull upside] / [Bear downside] = ___x (Good investments typically offer 3:1 or better risk/reward)
Analyst Consensus vs. Intrinsic Value
Street vs. Model Comparison: Analyst Consensus Target (Mean): $___ Analyst Consensus Target (High): $___ Analyst Consensus Target (Low): $___ # Analysts covering: ___ Buy / Hold / Sell ratings: ___ / ___ / ___ Our Composite IV: $___ vs. Consensus Mean: ___% [premium/discount] Interpretation: - Model > Consensus: Market may be underestimating growth/margin potential - Model < Consensus: Street may be pricing in too-optimistic assumptions - Large divergence: Investigate the key assumption difference
Deep DCF Modeling
This section provides the full step-by-step DCF construction methodology for analysts who need a more rigorous, first-principles build. Use this when the quick DCF in Method 1 above requires deeper documentation, when running a standalone DCF, or when preparing material for an investment committee.
Revenue Growth — Multi-Anchor Approach
Use multiple anchors to triangulate a defensible growth assumption:
- Segment approach: Project each revenue segment separately when possible (e.g., services vs. hardware, cloud vs. on-prem, international vs. domestic)
- Historical growth analysis: 3yr, 5yr, and 10yr revenue CAGR as a baseline anchor
- Analyst consensus estimates: Use sell-side consensus for years 1–3 as a cross-check
- Management guidance: Forward revenue guidance and long-term targets from earnings calls and investor days
- Industry growth rate: Use as a ceiling anchor (a company cannot sustainably grow faster than its industry forever)
- Growth tapering: Apply higher growth in years 1–5, decelerating in years 6–10 toward the terminal growth rate
FCF Margin Construction
Project future FCF margins based on operating leverage and business model dynamics:
- Historical FCF margin trend (expanding, stable, or compressing — identify the driver)
- Operating leverage potential: As revenue scales, what fixed costs are being leveraged? (R&D, G&A, sales infrastructure)
- Capex intensity (% of revenue): Is capex increasing (scaling infrastructure) or decreasing (mature asset base)?
- Working capital changes: Is the company a working capital consumer or generator? (subscription businesses often generate WC)
- Normalize for one-time items: Strip out litigation settlements, asset sale gains, restructuring charges
- SBC adjustment: Subtract SBC from reported operating cash flow to get true economic FCF
Terminal Value — Two Methods
Terminal value represents all cash flows beyond the 10-year explicit forecast period:
- Terminal growth rate (g): Typically 2–3% (anchored to nominal GDP growth). Never set g > WACC — this implies infinite value
- Gordon Growth Model (preferred):
TV = FCF₁₀ × (1 + g) / (WACC − g) - Exit Multiple Method (alternative):
Use industry-appropriate EV/FCF multiples from comparable mature companiesTV = FCFₙ × (EV / FCF exit multiple) - Terminal value as % of Enterprise Value: If TV > 80% of total EV, the model is highly sensitive to terminal assumptions. Flag this explicitly and widen the sensitivity range
WACC Decomposition Table
Complete WACC build with component-level transparency:
WACC Decomposition ────────────────────────────────────────────────────────────────────── Component Value Notes ────────────────────────────────────────────────────────────────────── Risk-Free Rate (Rf) ___% 10-year US Treasury yield Beta (β) ___ 5-year monthly vs. S&P 500 Equity Risk Premium (ERP) ___% Damodaran estimate (5–6%) Size Premium ___% 0–2% for small/mid-cap ────────────────────────────────────────────────────────────────────── Cost of Equity Ke = Rf + β×ERP + Size ___% ────────────────────────────────────────────────────────────────────── Interest Expense (TTM) $___M Total Debt $___M Pre-tax Cost of Debt ___% Effective Tax Rate ___% ────────────────────────────────────────────────────────────────────── After-Tax Cost of Debt Kd×(1−t) ___% ────────────────────────────────────────────────────────────────────── Equity Market Cap (E) $___M Total Debt (D) $___M E/V (Equity Weight) ___% Market value weights D/V (Debt Weight) ___% Market value weights ────────────────────────────────────────────────────────────────────── WACC = Ke×(E/V) + Kd×(D/V) ___% ────────────────────────────────────────────────────────────────────── Typical WACC Ranges by Risk Profile: Risk Profile WACC Range Company Examples ───────────────────────────────────────────────────── Low risk (utility) 6–8% Regulated utilities, large cap staples Medium risk 8–11% Large cap tech, established growth High risk 11–15% Small cap, emerging market, cyclical Very high risk 15–20%+ Early-stage, distressed, pre-revenue
Three-Scenario Model — Full Detail
Always present three scenarios with explicit assumption differences and probability-weighted output:
Three-Scenario DCF Framework Scenario Probability Revenue CAGR (Y1-5) FCF Margin (Y5) WACC Terminal g Bull 20% [higher growth] [higher margin] [lower] [2.5%] Base 60% [consensus growth] [stable margin] [base] [2.0%] Bear 20% [lower growth] [compressed] [higher] [1.5%] Scenario Narratives: Bull Case: Favorable macro, market share gains, operating leverage, margin expansion Base Case: Historical trend continuation, modest improvement in line with guidance Bear Case: Competitive pressure, margin compression, macro headwinds, execution risk Intrinsic Value Output: Bull Case IV: $[value] Base Case IV: $[value] Bear Case IV: $[value] Probability-Weighted IV = (20% × Bull IV) + (60% × Base IV) + (20% × Bear IV) = $[value]
The probability-weighted IV is the primary output used for investment decision-making.
5×5 Sensitivity Table — Interpretation Guide
Sensitivity Table — Intrinsic Value per Share ($) Terminal Growth Rate WACC 1.0% 1.5% 2.0% 2.5% 3.0% 6.0% $xxx $xxx $xxx $xxx $xxx 7.0% $xxx $xxx $xxx $xxx $xxx 8.0% $xxx $xxx $xxx $xxx $xxx ← Base Case 9.0% $xxx $xxx $xxx $xxx $xxx 10.0% $xxx $xxx $xxx $xxx $xxx [*] Shaded cell = Base Case assumption
Interpretation guide:
- If the entire table shows a margin of safety vs. current price → high confidence in undervaluation
- If only a few cells show margin of safety → valuation depends critically on specific assumptions
- If no cells show margin of safety → stock is expensive under all reasonable DCF scenarios
Common DCF Pitfalls
- Garbage in, garbage out: Extrapolating recent high-growth rates too far into the future. Be conservative, especially in years 6–10.
- Terminal value dominance: If TV > 70% of enterprise value, the model is more speculation than analysis. Stress-test terminal assumptions aggressively.
- WACC too low: Using a WACC below the risk-free rate, or ignoring size/liquidity premiums for smaller companies, artificially inflates intrinsic value.
- Ignoring cyclicality: Using peak FCF margins as the base for a cyclical business. Always normalize FCF through a full business cycle.
- Ignoring stock-based compensation: SBC is a real, dilutive cost. Subtract it from operating cash flow when calculating true economic FCF.
- Single scenario thinking: Presenting only a base case. Always run Bull, Base, and Bear scenarios with explicit assumption differences.
- Hidden working capital and capex changes: Rapidly growing companies often consume significant working capital. Ensure this drag is reflected in FCF projections, not hidden in operating cash flow.
- Currency and geographic mix: For international businesses, project by geography and apply appropriate discount rates by region.
When DCF Is (and Isn't) the Right Tool
When DCF is most reliable:
- Stable, mature businesses with predictable, consistent FCF
- Asset-light businesses with high FCF conversion (e.g., software, consumer brands)
- Companies with 10+ years of FCF generation history
- Businesses where future cash flows are reasonably bounded (regulated utilities, subscription SaaS)
When DCF is less reliable (use relative valuation instead):
- Early-stage growth companies with no positive FCF yet — value lies in future optionality
- Highly cyclical businesses where normalizing FCF requires significant judgment
- Financial companies (banks, insurance, REITs) — use Price/Book, Price/Earnings, or dividend discount models instead
- Companies with lumpy or unpredictable capex cycles
- Turnaround situations where the path to profitability is uncertain
Input Formats
bash# Auto-calculate from public financial data /stock-valuation AAPL # Specify methods to use /stock-valuation MSFT --methods dcf,cca,ev-ebitda # Full multi-method analysis with visual output /stock-valuation NVDA --full --visual # Quick single-method valuation /stock-valuation GOOGL --method dcf --quick # Custom assumption overrides /stock-valuation AMZN --growth 15% --wacc 9% --terminal 2.5% # Compare multiple stocks /stock-valuation AAPL,MSFT,GOOGL --compare # With peer set specification /stock-valuation META --peers SNAP,PINS,TWTR,RDDT
Output Summary
Complete valuation report including:
- Business Summary: One-paragraph description of the business model and competitive position
- Method Selection Rationale: Why each method was selected or excluded
- DCF Analysis: Full 10-year projections, WACC decomposition, sensitivity table (3 scenarios)
- Comparable Company Analysis: Peer table with multiples and implied values
- Multiple-Based Valuations: EV/EBITDA, P/E, P/FCF implied ranges
- Football Field Chart: Visual range of all methods
- Composite Intrinsic Value: Weighted average across all methods
- Margin of Safety Assessment: Discount/premium to current price
- Risk-Adjusted Expected Return: Scenario-weighted expected return calculation
- Key Valuation Risks: What assumptions could most materially change the outcome
- Analyst Consensus Comparison: How model compares to Street consensus
Standard Signal Output
All analysis concludes with this standardized block:
## Thesis Invalidation After delivering the analysis signal, specify what would reverse it: **If signal is BULLISH — thesis breaks if:** - intrinsic value declines >20% on updated assumptions OR multiple compression vs. peers worsens - [One or two more triggers drawn from this analysis's own drivers, each with a threshold] **If signal is BEARISH — thesis breaks if:** - all 5 valuation methods show >20% upside at current price simultaneously - [One or two more triggers drawn from this analysis's own drivers, each with a threshold] **Re-run this analysis when:** - [ ] Next earnings release - [ ] Price moves ±15% from current level - [ ] 60 days have elapsed - [ ] Material news event (acquisition, leadership change, regulatory decision) ╔══════════════════════════════════════════════╗ ║ INVESTMENT SIGNAL ║ ╠══════════════════════════════════════════════╣ ║ Signal: BULLISH / NEUTRAL / BEARISH ║ ║ Confidence: HIGH / MEDIUM / LOW ║ ║ Horizon: SHORT / MEDIUM / LONG-TERM ║ ║ Score: X.X / 10 ║ ╠══════════════════════════════════════════════╣ ║ Action: BUY / HOLD / SELL ║ ║ Conviction: STRONG / MODERATE / WEAK ║ ╚══════════════════════════════════════════════╝
Score Guide: 8.0–10.0 Strongly Bullish | 6.0–7.9 Moderately Bullish | 4.0–5.9 Neutral | 2.0–3.9 Moderately Bearish | 0.0–1.9 Strongly Bearish Confidence: HIGH (strong data, clear signals) | MEDIUM (mixed signals) | LOW (limited data, conflicting signals) Horizon: SHORT-TERM (1 week–3 months) | MEDIUM-TERM (3 months–1 year) | LONG-TERM (1+ years)
Disclaimer: Educational analysis only. Not financial advice.
