Advanced valuation and analysis methods used by professional investors.
Discounted Cash Flow (DCF) Valuation
DCF estimates the intrinsic value of a company by projecting future cash flows and discounting them back to today using a required rate of return (WACC). If the intrinsic value exceeds the current price, the stock may be undervalued. Small changes in assumptions (growth rate, discount rate) dramatically affect the result — always run multiple scenarios.
Intrinsic Value = Σ [FCFt ÷ (1 + WACC)t] + [Terminal Value ÷ (1 + WACC)n]
EV/EBITDA Multiple
Enterprise Value to EBITDA is a capital-structure-neutral valuation multiple. It's preferred over P/E when comparing companies with different debt levels. A lower EV/EBITDA relative to peers may indicate undervaluation. Typical ranges vary widely: 8–12x for mature industrials, 20–40x+ for high-growth tech companies.
EV = Market Cap + Debt − Cash | EV/EBITDA = EV ÷ EBITDA
Return on Equity (ROE) & ROIC
ROE measures profit relative to shareholder equity, while ROIC compares after-tax operating profit with the capital required to run the business. High ROE can be amplified by leverage or a reduced equity base. Sustained ROIC above the cost of capital is stronger evidence of value creation.
ROE = Net Income ÷ Shareholders Equity | ROIC = NOPAT ÷ Invested Capital
Technical Analysis: Moving Averages
The 50-day and 200-day simple moving averages summarize intermediate and long-term trend direction. Crossovers describe a change in trend structure, but they are lagging observations rather than reliable forecasts. Use them with volume, volatility, and the business thesis.
RSI - Relative Strength Index
RSI measures the speed and magnitude of recent price changes on a 0–100 scale. Readings above 70 or below 30 describe unusually strong or weak momentum; they are context, not automatic sell or buy signals. RSI can remain extreme in persistent trends, so confirm it with price structure, volume, and the investment thesis.
RSI = 100 − [100 ÷ (1 + Average Gain ÷ Average Loss)]
MACD - Moving Average Convergence Divergence
MACD is a trend-following momentum indicator that compares two exponential moving averages, typically 12-day and 26-day periods. Signal-line crossovers and divergences describe changing momentum, but they can produce repeated false signals in sideways markets.
MACD = 12-day EMA − 26-day EMA | Signal = 9-day EMA of MACD
Comparable Company Analysis (Comps)
Comps involves valuing a company by comparing it to publicly traded peers using multiples like P/E, EV/EBITDA, P/S, and P/FCF. Select peers with similar business models, growth rates, and margins. Apply the peer median multiple to your company's metrics to derive an implied share price range. Used alongside DCF for a range of value estimates.
Margin of Safety
Margin of safety is the discount between market price and a conservative value estimate. The required discount should reflect business quality, balance-sheet risk, forecast uncertainty, and the reliability of the valuation method. A wider discount can reduce model risk, but it cannot eliminate thesis risk.
Driver-Based Forecasting
Build forecasts from operating drivers instead of extending a headline growth rate. Start with units, customers, price, or market share; then connect revenue to gross margin, operating expenses, taxes, reinvestment, and share count. Each assumption should have an observable source and a review date.
Revenue = Volume x Price | EPS = Net income / Diluted shares
Model Audit and Sensitivity
A model is decision support, not a prediction. Check units and signs, reconcile starting values, inspect terminal-value dependence, and run a two-way sensitivity table for the assumptions that matter most. If a small input change reverses the conclusion, the position requires a wider margin of safety.
Sensitivity = Change in output / Change in assumption
Per-Share Economics
Company growth does not automatically become shareholder growth. Compare revenue, free cash flow, and earnings growth with diluted share-count growth. Buybacks create value only when shares are repurchased below conservative intrinsic value.
Per-share growth = Business growth adjusted for dilution or buybacks
Base Rates and Failure Modes
Before accepting a forecast, compare it with industry base rates and write the specific operating conditions that would invalidate it. Separate temporary volatility from permanent impairment, and update the thesis when evidence changes rather than when price moves.
Expected value = Sum of scenario probability x scenario outcome
