Fair Value Price Calculator | DCF Stock Valuation
Calculate the intrinsic fair value of any stock using our free DCF (Discounted Cash Flow) calculator. Make smarter investment decisions with accurate stock valuation based on fundamentals.
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Overview
Calculate Fair Value Price with Confidence
Discover the true intrinsic value of any stock using the proven Discounted Cash Flow (DCF) method. Make smarter investment decisions based on solid fundamentals, not market hype.
Key Features
Input Parameters: Current FCF, Growth Rate, Terminal Growth Rate, Discount Rate/WACC, Projection Period, Shares Outstanding
Calculate intrinsic fair value based on DCF method
Interactive results display
Educational content about fair value pricing
Comprehensive FAQ section
What is Fair Value Price?
Fair value price, also known as intrinsic value, is the true worth of a stock based on its fundamental financial performance—not what the market is currently willing to pay for it. Think of it like this: just because someone's willing to pay $100 for a $20 bill doesn't make it worth $100. The same principle applies to stocks.
When you calculate fair value, you're essentially asking: "Based on this company's actual cash-generating ability, what should this stock really be worth?" This helps you identify whether a stock is overvalued (trading above fair value) or undervalued (trading below fair value)—which is where the real opportunities lie.
The market price fluctuates based on emotions, news, trends, and speculation. Fair value, on the other hand, is grounded in cold, hard numbers: cash flows, growth rates, and risk. It's the difference between gambling and investing.
Why Should You Calculate Fair Value?
Avoid Overpaying
Know when a stock is overpriced and avoid buying at inflated valuations. Even great companies can be bad investments if you pay too much.
Find Hidden Gems
Identify undervalued stocks that the market has overlooked. These are the opportunities that can generate significant returns over time.
Make Rational Decisions
Remove emotion from investing. When you have a calculated fair value, you can make decisions based on data, not fear or greed.
Long-Term Success
Value investing based on fair value has been proven by legends like Warren Buffett and Benjamin Graham to generate superior long-term returns.
How the DCF Method Works
The Discounted Cash Flow (DCF) method is the gold standard for stock valuation. It's based on a simple but powerful idea: a company is worth the sum of all the cash it will generate in the future, adjusted for the time value of money.
The DCF Formula Explained
Step 1: Project Future Free Cash Flows
Estimate how much cash the company will generate each year for the next 5-10 years. This is based on the current free cash flow and expected growth rate.
Step 2: Calculate Terminal Value
After your projection period, the company will continue generating cash. We calculate this "terminal value" assuming a steady, sustainable growth rate (usually 2-3%, matching GDP growth).
Step 3: Discount to Present Value
Use the discount rate (WACC - Weighted Average Cost of Capital) to convert all future cash flows to today's dollars. This accounts for risk and the time value of money.
Step 4: Calculate Per-Share Value
Add up all the discounted cash flows to get the enterprise value, then divide by the number of shares outstanding. That's your fair value per share!
Frequently Asked Questions
How accurate is the DCF method?
DCF is only as accurate as your inputs. It's not a crystal ball—it's a framework for thinking about value. The key is to be conservative with your assumptions and use sensitivity analysis.
Where do I find free cash flow data?
Check the company's cash flow statement in their annual report (10-K) or on financial websites like Yahoo Finance, Google Finance, or Seeking Alpha.
What's a good discount rate to use?
A common rule of thumb is 10% for average companies. Use 8-9% for very stable, low-risk companies, and 12-15% for riskier businesses.
Should I buy a stock immediately if it's undervalued?
Not necessarily. First, double-check your assumptions. Second, understand WHY it's undervalued. Third, consider your margin of safety—wait for an even better price if possible.
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