Intelligent Investor Style

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Intelligent Investor Style Formula

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This valuation model is based on the assumption that a zero growth stock should have a Price to Earnings Ratio (P/E) of 8.5 which reflects a return of 12% per year.

In addition, an intelligent investor should be confident that a company will grow double its earnings over the next 7-10 years.

Finally, the model also allows for “risk free rate”. This is based on the idea that investors should be compensated for inflation and a small risk free premium.

User Defined Parameters

The following parameter has default values that can be changed by users to change the selected formula's result:

Forecast Earnings Per Share

This ratio is different for every share. It is populated using fundamental data from ValueGain's fundamental data provider based on an average of analyst's forecasts for the company.

Different analysts use different methodologies for calculating this prospective ratio.

Users can substitute their preferred analyst's ratio and recalculate the results.

Results

Fair Value

The Fair Value calculation results are displayed after the calculator name in the Calculator Selection List.

Users cannot directly alter the resulting Fair Value, however changing the highlighted parameters (yellow background and blue outline) will normally result in a change in results for that calculator and any other calculators that use those parameters.

Results in Table and Graphs

Some of the results for the individual stock can be displayed in tables and graphs in the Results Display area on the right side of the work page.

For a detailed description of these tables and graphs, go to the Results Display topic.

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