What is a share's fair value?

An estimate of what the business behind each share is worth, from its earnings, growth and dividends. Comparing it with the price gives a margin of safety. Every method rests on assumptions, so treat the answer as a range, not a target.

Which bond yield should I use for the Graham formula?

Benjamin Graham used the yield on high-grade corporate bonds. In Pakistan, a 1-year T-bill or 3-5 year PIB yield is a practical stand-in; enter today's rate.

Why does growth change the answer so much?

All three methods multiply by growth. Last year's EPS growth rarely repeats, so try a lower, more lasting rate as well.

Fair value calculator

Three classic ways to put a value on a share, filled in with each company's latest EPS, growth and dividend yield. Change any assumption and watch the answer move.

Price now Rs 301.70

EPS, last full year (Rs)EPS growth a year%Prefilled from last year, capped at 25%Dividend yield%Government bond yield%Enter today's 12-month T-bill or PIB yieldDiscount rate (your required return)%Years of growthP/E when you sellShare of EPS paid out%

Method	Value per share	vs price
Peter Lynch (P/E = growth + yield)EPS × (25.0 + 3.8)	Rs 1,622.88	+438%
Benjamin Graham (revised formula)EPS × (8.5 + 2 × 25.0) × 4.4 ÷ 11.0	Rs 1,318.59	+337%
Earnings DCF (5 years, exit P/E 7)discounted at 18.0% a year	Rs 694.20	+130%

Middle estimate Rs 1,318.59: a 77% margin of safety at today's price. Change any input to see how sensitive the answer is.

Formulas are textbook yardsticks, not price targets. Small changes in growth or rates move the answer a lot. Not investment advice.

The three methods

Peter Lynch. A fairly priced company trades at a P/E about equal to its earnings growth rate plus its dividend yield. A company growing 15% a year with a 5% yield would be fair at about 20 times earnings.

Benjamin Graham. His revised formula, from The Intelligent Investor: value = EPS × (8.5 + 2 × growth) × 4.4 ÷ the current high-grade bond yield. 8.5 is the P/E he gave a company with no growth; 4.4 was the bond yield of his day. With Pakistan's higher rates, enter today's T-bill or PIB yield.

Earnings DCF. EPS grows at your rate for the years you choose, you collect the share of profit paid as dividends, and you sell at the P/E you expect. Each rupee is discounted back at your required return.

All three lean on the growth figure. Last year's growth is a starting point only; it rarely repeats.

Questions

What is a share's fair value?: An estimate of what the business behind each share is worth, from its earnings, growth and dividends. Comparing it with the price gives a margin of safety. Every method rests on assumptions, so treat the answer as a range, not a target.
Which bond yield should I use for the Graham formula?: Benjamin Graham used the yield on high-grade corporate bonds. In Pakistan, a 1-year T-bill or 3-5 year PIB yield is a practical stand-in; enter today's rate.
Why does growth change the answer so much?: All three methods multiply by growth. Last year's EPS growth rarely repeats, so try a lower, more lasting rate as well.

Related calculators

All calculators

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Method

Value per share

vs price

Peter Lynch (P/E = growth + yield)EPS × (25.0 + 3.8)

Rs 1,622.88

+438%

Benjamin Graham (revised formula)EPS × (8.5 + 2 × 25.0) × 4.4 ÷ 11.0

Rs 1,318.59

+337%

Earnings DCF (5 years, exit P/E 7)discounted at 18.0% a year

Rs 694.20

+130%