Live data
AAPL — Current Price, P/E Ratio. Open AAPL on the Ledge to see current values.
Step through
Step 1: Forecast free cash flows for the next 5-10 years based on revenue growth, margins, and capital needs.
Step 2: Estimate terminal value -- what the business is worth after your forecast period (usually using a growth rate of 2-3%).
Step 3: Discount everything back to present value using WACC (the company's cost of capital). A dollar next year is worth less than a dollar today.
Step 4: Calculate margin of safety -- how far below your estimate the stock trades. This platform uses (intrinsic value - price) / intrinsic value. Some use price as denominator instead.
Formula
Margin of Safety = (Intrinsic Value - Price) / Intrinsic Value
Try it
Open any ticker and look at the **Valuation** section. Check the DCF estimate and compare to the current price.
Key insight
Check-in
Your DCF model says intrinsic value is $150/share. The stock trades at $100 — a 50% upside. How confident should you be?
Check your understanding
Sit with the ideas.
A DCF model says a stock is worth $150 but it trades at $100. What is the margin of safety?
Why: