1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies

Margin of safety calculation

I was interested in how gurufocus value investors calculate the margin of safety intrinsic value of a stock.

Currently I use a simple formula:

Equity per share (adjusted for intangible assets, inventory) + past 3 yr avg EPS * 10.

Screening criteria:

Total equity > total liabilities

ROE > 20%

Free Cash Flow yr1 + yr2 + yr3 >= 0

P/E < 15

Please chime in and share your thoughts


Rating: 2.8/5 (5 votes)

Comments

billytickets
Billytickets - 8 years ago
My book Consume Consume and Consume More has my formula with a built in margin of safety that tells you when to buy .
roke6362
Roke6362 - 8 years ago
Equity/share is 61266/2897=21.15 / EPS AVG. past 3 years=3.34*2897=9676*10=96760

96760+61266=158026

158026/2897=54.55

Your IV formula does not consider historical PE values. It also does not consider the reproduction value to cash flow of their R & D. Compare FCF and normalized earnings and come up with an earnings figure. Divide that number by the (WACC-Terminal Growth Factor). Only use TGF if the business has real franchise value. Then add excess cash. Divide by the #shares outstanding. Then choose a margin of safety that fits your appetite for risk (25%-50%).

Please leave your comment:


Select portfolio(s):

Why you are interested?

Your selection and notes will be stored in your portfolio.

Login to add portfolio
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
FEEDBACK