# How To Calculate Fair Value Of Stock

Understanding the fair value of a stock is crucial for investors looking to make informed decisions. It provides an estimate of a stock’s intrinsic worth, helping investors identify whether a stock is undervalued, overvalued, or priced at its true value.

Formula: The fair value of a stock is calculated using the formula: Fair Value=Earnings Per Share×(1+Growth Rate)Discount Rate−Growth RateFair Value=Discount Rate−Growth RateEarnings Per Share×(1+Growth Rate)​

How to Use:

1. Input the current stock price.
2. Input the earnings per share (EPS).
3. Input the growth rate (in percentage).
4. Input the discount rate (in percentage).
5. Click the “Calculate” button to get the fair value.

Example: Suppose the current stock price is \$50, EPS is \$3, growth rate is 8%, and discount rate is 10%. After entering these values and clicking “Calculate,” the fair value would be calculated and displayed.

FAQs:

1. Q: Why is fair value important for investors? A: Fair value helps investors make decisions based on a stock’s true worth, avoiding overpaying or missing investment opportunities.
2. Q: How often should I calculate fair value? A: It’s recommended to recalculate when there are significant changes in the company’s financials or market conditions.
3. Q: Can fair value be negative? A: No, fair value should not be negative. If it is, recheck your inputs or the underlying data.

Conclusion: Calculating the fair value of a stock empowers investors to make more informed decisions in the dynamic world of financial markets. By understanding the intrinsic worth of a stock, investors can navigate the market with greater confidence and precision.