Before we explain anything about the fair value of a stock and how to calculate it we need to have below assumption in place.
PAT growth rate :- We need to determine which will be a moderate PAT growth rate for next 10 years based on few factors like ->
i) It's past PAT growth rate.
ii) It's expansion plan for next 10 years
iii) It's distribution network
iv) It's ability to sustain at that level
v) Macro economic impact
Discounting Rate :- This is also a vital rate of which one part is very simple i.e. the 10 year long govt bond rate but the other part i.e. the risk factor we need to calculate based on various factor like ->
i) Risk involve in it's growth plan
ii) Economic Moat
iii) Any Macro Economic effect
iv) Financial Leverage
v) Operating Leverage
vi) Debt/Equity ratio
Apart from that it is easy to get PAT,Total Outstanding Shares,Perpetuity Growth Rate,Current Share price value & Current EPS. Which will be the other inputs of this tool.
There is also one more input which we call MOS(Margin of Safety) which generally depends on a company's wider or narrower economic moat here for DCB we have taken the moderate MOS of 2%.
Consider the below example of DCB bank whose PAT stands at 151cr, Total Share Outstanding 27.4 cr, EPS 5.93,PE 18.54. Now consider 13% PAT growth and a risk premium of 8% we have calculated our intrinsic value of EPS which stands at 7.86. Hence we have the fair value of the stock at 145.97 on premium and Forward P/E at 13.97 and having an upside of 32.7%. Also have Warren Buffet Calculator here.
PAT growth rate :- We need to determine which will be a moderate PAT growth rate for next 10 years based on few factors like ->
i) It's past PAT growth rate.
ii) It's expansion plan for next 10 years
iii) It's distribution network
iv) It's ability to sustain at that level
v) Macro economic impact
Discounting Rate :- This is also a vital rate of which one part is very simple i.e. the 10 year long govt bond rate but the other part i.e. the risk factor we need to calculate based on various factor like ->
i) Risk involve in it's growth plan
ii) Economic Moat
iii) Any Macro Economic effect
iv) Financial Leverage
v) Operating Leverage
vi) Debt/Equity ratio
Apart from that it is easy to get PAT,Total Outstanding Shares,Perpetuity Growth Rate,Current Share price value & Current EPS. Which will be the other inputs of this tool.
There is also one more input which we call MOS(Margin of Safety) which generally depends on a company's wider or narrower economic moat here for DCB we have taken the moderate MOS of 2%.
Consider the below example of DCB bank whose PAT stands at 151cr, Total Share Outstanding 27.4 cr, EPS 5.93,PE 18.54. Now consider 13% PAT growth and a risk premium of 8% we have calculated our intrinsic value of EPS which stands at 7.86. Hence we have the fair value of the stock at 145.97 on premium and Forward P/E at 13.97 and having an upside of 32.7%. Also have Warren Buffet Calculator here.
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