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How to know the value of a stock

Here's a simple, scenario-friendly way to estimate a stock's fair value using multiples valuation: project revenue growth, apply a mature EBIT margin, apply a terminal P/E multiple, and discount the result back to today.

The Method

The multiples valuation approach (fast and practical)

This page uses a simple model we like because it makes your assumptions explicit:

Revenue → EBIT margin → Earnings (EBIT) → EPS → Terminal P/E → Discount back

The point isn't to be "perfect." The point is to understand what must be true for today's price to make sense.

Try It Yourself

NVDA example (editable calculator)

Below is a worked example using NVDA assumptions. You can change any input to compare various scenarios.

Multiples valuation calculator

NVDA example (editable)

Loading NVDA revenue, shares, and current price…

Valuation Results

Fair Price Today

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1-Year Target

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2-Year Target

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3-Year Target

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3-Year Revenue CAGR

38.00%

Mature EBIT Margin (Year 3)

52.50%

Terminal P/E

35.00x

Under the hood

Projected revenue (Year 3): —

Projected EBIT (Year 3): —

Projected EPS (Year 3): —

Terminal price (Year 3): —

A transparent, fundamentals-based valuation model that converts your revenue, margin, and valuation multiple assumptions into an implied fair value. It is not financial advice.

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Best Practices

How to choose inputs (quick heuristics)

If you're unsure where to start, use conservative assumptions and widen your range:

1

Growth

use a realistic multi-year CAGR, not a single hot quarter.

2

Mature margin

ask what margins look like when growth slows and competition intensifies.

3

Terminal P/E

higher multiples require stronger durability and lower risk.

4

Discount rate

higher for riskier businesses; lower for stable cash flows.

Common Questions

Stock valuation FAQ

How do I calculate the fair value of a stock using EPS and a P/E multiple?

Estimate future earnings per share (EPS) from your revenue growth and a mature EBIT margin, then apply a terminal P/E to get a future price. Finally, discount that future value back to today using your required return (discount rate).

How do I know if a stock is undervalued or overvalued today?

Compare the current price to a range of fair values across conservative, base, and optimistic scenarios. If today's price is below your conservative range it may be undervalued; if it's above your optimistic range, expectations may be stretched.

Which inputs matter most in a multiples valuation model?

Revenue growth (CAGR), mature EBIT margin, terminal P/E multiple, discount rate, and shares outstanding (dilution). Small changes to any of these can materially change your fair value estimate.

What does a 'mature EBIT margin' mean in a stock valuation model?

It's the operating profit margin you expect once growth slows and the business is more mature. Because margin drives earnings and EPS, it often matters as much as growth in a multiples-based valuation.

What discount rate should I use to value a stock?

Use your required annual return (higher for riskier companies, lower for stable ones). Most importantly, test sensitivity across a range so you understand how much fair value depends on the discount rate.

Is a multiples valuation the same as a DCF model?

They're related. A DCF discounts explicit cash flows. This multiples approach discounts a terminal earnings value, which is usually faster for scenario work and 'what must be true' checks.

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