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Undervalued Predictable Companies - Discount Cash Flow and Discount Earnings

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What are Undervalued Predictable Companies?


We applied the discounted cash flow and discounted earnings to the top ranked predictable companies, and calculated the intrinsic values of the these companies. These are the companies that appeared to be undervalued as measured by discounted cash flow model or discounted earning model. The formula and methodology are described in What worked in the market from 1998-2008? Intrinsic Value, Discounted Cash Flow and Margin of Safety. The assumptions for the calculations are:

  • We assumed a discount rate of 12%.
  • The tangible book values of the business is used as the current book value.
  • The growth rate for the next 10 years are assumed to be the same as the average growth rate of the past 10 years,
  • and the terminal values of the businesses are ignored.

The intrinsic value of the companies are calculated with:

Intrinsic Value = Book Value + Future Earnings at Growth Stage + Terminal Value



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