HOW FINDX CALCULATES FAIR VALUE

Fair Value P/E is our estimate of a sensible price tag for the stock. P/E means Price divided by Earnings: how many dollars investors pay for one dollar of profit. If Fair Value P/E is 15, the model reckons 15 dollars per dollar of earnings is a reasonable price. Trade far above that and the stock may be expensive; far below and it may be cheap.

Multiply that multiple by the company's weighted earnings per share and you get fair value itself, drawn as the dark green line on the chart. When the black price line sits above the green one, the market is asking more than the model thinks the business is worth. Below, and it is asking less.

Fair value is a well-reasoned estimate, not a promise. It depends on growth, earnings, analyst estimates, and the model doing the arithmetic. Treat it as a starting point for your own judgment.

Where the growth number comes from

Here is the part most sites hide: you choose. The multiple depends on an assumed growth rate, and the Valuation basis selector lets you decide where that number comes from. Findx supports up to six bases, though which ones you can pick depends on your access level and on whether the underlying data exists for that company.

Three of them run the growth recipe described below:

• ▸Estimated EPS growth (2y): the usual starting point when analysts' estimates exist. It measures how much analysts expect earnings per share to grow from the latest completed financial year to the financial year two years later. Companies' financial years do not always follow the calendar, so this is not exactly two years from today. If no estimates exist, the page starts on EPS growth in period instead.
• ▸Estimated EPS growth (3y): the same idea, one financial year further out, which smooths over a single odd year.
• ▸EPS growth in period: how the company has actually grown over the stretch of history you select on the chart.

The other three do not use the growth recipe at all, which is worth knowing before you read anything into them:

• ▸Analyst price target: takes the analysts' consensus target price and divides it by expected earnings, turning their collective verdict straight into a multiple.
• ▸P/E range (18m): looks at the highest and lowest P/E investors have actually paid for the stock over the last 18 months, using the points shown on the chart. Fair value sits in the middle of that range. The earnings behind those P/E figures include analysts' expectations, so this method is not free of estimates. Its future lines use the 2-year estimated growth when available, otherwise the growth in the selected period. The range shows where the price has been, not where it must stay.
• ▸My values: your own numbers. Type them in, or drag the lines on the chart.

For real estate companies (REITs) the earnings figure can be FFO or AFFO per share instead of EPS, and the same methods then give a Fair Value P/FFO. Funds and ETFs are not valued this way.

Switching between them is the most useful thing on this page. If fair value barely moves as you change basis, you can lean on it with some confidence. If it swings wildly, the stock is telling you its worth hinges on assumptions, and you should tread more carefully.

How the growth-based methods choose the multiple

This is the recipe the three growth bases use. The analyst price target, the P/E range (18m), and your own values set the multiple directly instead, as described above.

The multiple comes from one thing: how fast earnings are growing. A business whose profits are shrinking should not carry the same price tag as one compounding nicely, so Findx sorts companies into four broad bands.

• ▸Shrinking, growth below 0%: a low multiple, between 7 and 10. Falling earnings carry real risk, and the valuation should say so.
• ▸Slow growth, 0% to 5%: the multiple rises from 10 to 13.
• ▸Moderate growth, 5% to 15%: from 13 to 16, around the long-run market average.
• ▸Fast growth, above 15%: from 16 upward, but with a brake applied, and capped at 25. An unusually hot growth number should not send the valuation into orbit.

In formula terms, where growth is the annual rate in percent:

• ▸Growth < 0%: max(7, 10 + growth × 0.6)
• ▸0% to 5%: 10 + growth × 0.6
• ▸5% to 15%: 13 + (growth - 5) × 0.3
• ▸Above 15%: min(25, 16 + √(growth - 15) × 2.25)

Two edge cases worth knowing. If the starting earnings for the period are zero or negative, or the ending earnings are negative, growth cannot be calculated at all, and the model falls back to a conservative multiple of 10 so the chart still has a reference line. And if earnings are missing entirely at either end of the period, no fair value is calculated for that period, because a guess built on a gap is worse than no number.

The band around fair value

Alongside fair value you get an upper and a lower line, together forming a band that shows where the stock sits inside its calculated range. How those two lines are set depends on the basis:

• ▸For the three growth bases and the analyst price target, upper and lower sit 10% either side of fair value.
• ▸For the 18-month range, they are the actual highest and lowest multiples observed in that window.
• ▸For your own values, all three lines are whatever you set them to.

You can drag any of these lines on the chart. It is worth trying: find a level where the share price has historically swung both above and below the line, and you have a multiple fitted to how this particular stock actually trades, rather than to a general rule.