--- description: Multi-method stock valuation using DCF, comparable company analysis, EV multiples, and residual income models --- # Stock Valuation ## ⚠️ Data Verification — Do This Before Any Analysis Before running any analysis, always retrieve the latest market data for the ticker: 1. **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. 2. **Confirm key figures** — recent earnings, revenue, key ratios (P/E, P/S, etc.) as applicable to this skill. 3. **State your data source** — note where the numbers came from (e.g., "Google Finance, June 19 2026") at the top of the output. 4. **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 ⚠️ **Live data unavailable.** The following analysis uses training-data estimates which may be significantly out of date.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. --- 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/Share Weight EV/Revenue $___M Rev ___x $___ 25% EV/EBITDA $___M EBITDA ___x $___ 25% P/E (Forward) $___ EPS ___x $___ 25% EV/FCF $___M FCF ___x $___ 25% ──────────────────────────────────────────────────────────────────────────────────── 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 ``` --- ## 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: 1. **Business Summary**: One-paragraph description of the business model and competitive position 2. **Method Selection Rationale**: Why each method was selected or excluded 3. **DCF Analysis**: Full 10-year projections, WACC calculation, sensitivity table (3 scenarios) 4. **Comparable Company Analysis**: Peer table with multiples and implied values 5. **Multiple-Based Valuations**: EV/EBITDA, P/E, P/FCF implied ranges 6. **Football Field Chart**: Visual range of all methods 7. **Composite Intrinsic Value**: Weighted average across all methods 8. **Margin of Safety Assessment**: Discount/premium to current price 9. **Risk-Adjusted Expected Return**: Scenario-weighted expected return calculation 10. **Key Valuation Risks**: What assumptions could most materially change the outcome 11. **Analyst Consensus Comparison**: How model compares to Street consensus --- ## Standard Signal Output All analysis concludes with this standardized block: ``` ╔══════════════════════════════════════════════╗ ║ 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)