Which valuation method is used — and why

Not all companies can be valued the same way. A dividend-paying bank is fundamentally different from a high-growth software company, which is different from a property trust. We automatically select the most appropriate method based on what kind of business you're analysing.

We value companies on their annual results; quarterly updates aren't included.

Buffett Normalized (the default)

Used for most growth companies with a consistent earnings history. We project earnings forward 10 years at the growth rate similar companies actually achieved, slowing over the decade, apply the P/E the stock has typically traded at (capped at 25×), and discount back to today at 9% per year. The "Buffett Normalized" part refers to our use of a long-run average earnings figure rather than a single year, following Warren Buffett's approach to measuring a business's true earning power.

Owner Earnings

Used for mature, low-growth companies where cash generation matters more than earnings growth. We calculate owner earnings — Warren Buffett's preferred measure of true cash profitability — grow them for 10 years at the rate similar companies actually achieved, apply the multiple the company has typically traded at, and discount back to today at 9% per year.

Free Cash Flow Growth

Used when free cash flow is the better guide than earnings: free cash flow growing faster than earnings, earnings shrinking while cash flow keeps growing, or too little earnings history but consistent cash flow. Free cash flow per share is projected 10 years, valued at its typical price-to-free-cash-flow, and discounted back at 9%.

Dividend Discount Model

Used for steady dividend payers: a dividend paid 10 or more years in a row, raised in most of them, a yield of at least 2%, and earnings growth under 12% a year. Regulated utilities with a steady dividend record use it too. The intrinsic value is derived from the present value of a growing stream of future dividends. The dividends are discounted at the same 9% required return as every other method.

Justified P/B (banks, insurers, and balance-sheet lenders)

Standard earnings-based models don't work well for financial companies because loans and deposits are both assets and liabilities in ways that make "invested capital" a different concept. We use return on tangible common equity (ROTCE) to derive a theoretically justified price-to-book multiple, then multiply by tangible book value per share.

This covers banks and insurers, but also brokerages and capital-markets firms, and — importantly — any consumer lender whose balance sheet is genuinely loan-funded (credit cards, auto loans, student loans), even when it's classified in a broader "financial services" category that also contains asset-light, fee-based businesses like payment networks. A card issuer that earns most of its revenue from interest on a loan book has the same "capex and cash flow don't mean what they normally mean" problem a bank has, even if it isn't technically a bank — we detect this by checking how much of a company's revenue actually comes from interest income, not just its industry label.

FFO-Based (REITs)

Real estate investment trusts are required to pay out most of their earnings as dividends and take large non-cash depreciation charges that suppress reported earnings. We use Funds From Operations (FFO) — earnings before depreciation — which better captures a REIT's true cash-generating ability.

One exception: mortgage REITs, which own loans and mortgage-backed securities rather than physical property, don't have the depreciation problem FFO exists to fix — their assets don't depreciate the way a building does. They're valued with Justified P/B instead, the same way a bank is, since a portfolio of loans behaves much more like a bank's balance sheet than like a landlord's.

Free Cash Flow

The cash-flow twin of Owner Earnings. Where Owner Earnings starts from operating cash flow minus only the upkeep part of capital spending, this method starts from full free cash flow — operating cash flow minus all capital spending — and values it the same way: a 10-year projection, an exit multiple, discounted at 9%. Used for mature, cash-generative businesses where reported earnings are distorted but free cash flow is clean and stable.

EV/EBITDA

Used as a last-resort fallback for capital-intensive or heavily levered businesses, where earnings are distorted by large depreciation and interest charges — so a P/E-based value says little about the enterprise. We capitalise EBITDA at an EV/EBITDA multiple (the company's own history, or the sector's, capped), then subtract net debt to get the equity value.

Asset-Based (tangible book)

Used as a last-resort fallback for asset plays whose earnings carry no real value signal — a company whose reported profit is near zero but whose balance sheet holds substantial tangible assets. We value tangible book value (equity minus goodwill and intangibles) at a deliberately conservative fraction of book, not as a claim that book is intrinsic value.

Earnings Power (the company's own P/E)

Used as a last-resort fallback when the growth-and-discount projection prices a company far below its market price — there, the growth assumption and the discounting are doing more work than the earnings themselves. We drop the projection entirely and value normalized EPS at the company's own realized historical P/E (each year capped, so one anomalous year can't dominate). No growth forecast and no discount.

Sales-Based (P/S)

The final fallback, for companies whose earnings are too thin or too negative to support any conservative P/E — an early-stage or hyper-growth business with real revenue. We value revenue per share at the company's own historical price-to-sales multiple (falling back to the sector median when its own history is too short). No growth forecast and no discount.

Sales-Based is also used as the primary method for a specific class: commercial-scale businesses that are unprofitable on GAAP earnings but growing fast and generating real revenue (a pattern the standard earnings model cannot project). The Valuation tab always names the method actually used and why.