Intrinsic Value Calculator (Earnings + Terminal Value Model)
Use this tool to estimate a stock’s fair value based on expected earnings growth, a future valuation multiple, and your required rate of return.
This is an educational model. Real-world valuation should include competitive position, debt, cyclicality, and scenario testing.
What is intrinsic value?
Intrinsic value is an estimate of what a stock is truly worth based on the cash or earnings the business can generate over time. Market price moves every day, but intrinsic value changes more slowly as business fundamentals evolve. Investors compare the two values to identify potential opportunities.
How this intrinsic value calculator works
This calculator uses a practical valuation framework:
- Project future earnings per share (EPS) over a forecast period.
- Estimate a future stock price using a terminal P/E multiple.
- Discount that future value back to today using your required return.
- Add discounted dividends received during the holding period.
Projected EPS in year n = EPS0 × (1 + g)n
Terminal Value in year n = EPSn × Terminal P/E
Present Value of Terminal Value = Terminal Value ÷ (1 + r)n
Intrinsic Value = Present Value of Terminal Value + Present Value of Dividends
Input guide (what each field means)
1) Current EPS (TTM)
Use trailing twelve-month diluted EPS for a realistic baseline. If earnings are temporarily inflated or depressed, consider a normalized EPS instead.
2) Expected EPS growth rate
This is your estimate for annual earnings growth during the forecast period. Conservative assumptions usually produce better decisions than optimistic ones.
3) Forecast period
Most investors use 5–10 years. Longer periods can be useful for stable businesses but increase model uncertainty.
4) Terminal P/E multiple
This reflects what the market may pay for the company’s earnings at the end of your forecast period. Use industry norms, historical ranges, and business quality to choose a sensible multiple.
5) Discount rate (required return)
This is your target annual return, often between 8% and 12% for long-term equity investors. Higher discount rates reduce intrinsic value estimates.
6) Dividend inputs
If the stock pays dividends, you can include them. The calculator discounts each year’s dividend and adds it to estimated fair value.
How to interpret the results
- Intrinsic Value per Share: Your model-based fair value today.
- Difference vs Current Price: Dollar gap between fair value and market price.
- Margin of Safety: The discount (or premium) of price relative to intrinsic value.
- Implied Upside/Downside: Potential return from current price to fair value.
If intrinsic value is above current price, the stock may be undervalued. If it is below current price, the stock may be overvalued. Neither outcome is guaranteed; valuation is always estimate-based.
Quick best practices for better estimates
- Start with conservative growth assumptions.
- Use multiple scenarios: base, bull, and bear cases.
- Cross-check with other valuation methods like discounted cash flow and EV/EBIT multiples.
- Compare assumptions with company history and peer averages.
- Revisit your valuation when new earnings reports are released.
Common mistakes investors make
Using unrealistic growth rates
High growth is hard to sustain. Even exceptional companies eventually slow down.
Ignoring valuation mean reversion
Assuming an aggressively high terminal P/E can overstate fair value significantly.
Forgetting risk and balance sheet quality
Debt levels, cyclicality, and competitive pressure can materially change intrinsic value.
Relying on one output number
Treat valuation as a range, not a single precise point estimate.
Final thought
An intrinsic value model helps you think like a business owner, not a trader. The biggest benefit is discipline: defining assumptions, stress-testing them, and demanding a margin of safety before investing. Use this calculator as a starting point, then combine it with qualitative research and risk analysis to make better long-term decisions.