/stock-valuation

description: Multi-method stock valuation using DCF, comparable company analysis, EV multiples, and residual income models

Stock Valuation

⚠️ Data Verification — Do This Before Any Analysis

Before running any analysis, always retrieve the latest market data for the ticker:

1. **Fetch current price** — use web search or ask the user for the live price, 52-week range, and market cap. Never assume a price from training data. 2. **Confirm key figures** — recent earnings, revenue, key ratios (P/E, P/S, etc.) as applicable to this skill. 3. **State your data source** — fill in the `Data & Sources` header (next section) so the origin, as-of date, retrieval path, and confidence of every figure are explicit at the top of the output. 4. **Flag stale data explicitly** — if live data is unavailable, display this warning before proceeding:

> ⚠️ **Live data unavailable.** The following analysis uses training-data estimates which may be significantly out of date. Verify all prices and metrics before making any decisions.

Never silently substitute training-data estimates for current prices. When in doubt, ask the user to paste the latest quote.

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📋 Data & Sources Header — Open Every Output With It

The first thing in the output is this provenance block, filled in — never left as placeholders. It is the standard documented on the [Data & Accuracy](https://yennanliu.github.io/InvestSkill/data-and-accuracy.html) page and the first thing `result-validator` looks for:

Data & Sources
  As of:      <date the figures represent, e.g. 2026-06-30>
  Source:     <primary docs — SEC EDGAR 10-K/10-Q, company IR, FRED, exchange data …>
  Retrieval:  <pasted by user | web/tool retrieval | model memory>
  Confidence: <HIGH | MEDIUM | LOW>

• `Retrieval: model memory` must be paired with `Confidence: LOW` — memory is a placeholder until confirmed against a primary source.
• Mixed sources: list each with its own as-of date rather than blending them.
• Sources disagree on the same figure (a closing price, a deal term): prefer the primary source (SEC filing, company release, exchange data) over an aggregator, then the most recent dated one. Show both values with their sources and dates, say which you used and why, and never average them.
• Data the user pasted is reported as `pasted by user`; do not upgrade its confidence beyond what the user's own source supports.

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Derive a rigorous intrinsic value estimate using multiple independent valuation methodologies, then triangulate to a single probability-weighted target price. Never rely on a single method — cross-validation across DCF, comparable company analysis (CCA), EV/EBITDA, and residual income models builds conviction and exposes assumption fragility.

Overview

Valuation is an art grounded in financial science. Each method has strengths and weaknesses depending on the business type, stage of maturity, and data availability. This skill applies four to five valuation methods, then reconciles them into a football field chart to show the implied value range. Wherever there is consensus across methods, conviction is high. Where methods diverge significantly, that gap tells you something important about market expectations.

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When to Use Each Method

Valuation Method          Best For                           Avoid For
────────────────────────────────────────────────────────────────────────────────────
DCF (Free Cash Flow)      Mature, FCF-positive businesses    Pre-revenue, banks, REITs
Comparable Company (CCA)  Any publicly traded company        No good public comps
EV/EBITDA Multiple        Capital-intensive industrials      Asset-light, high-SBC tech
Price/Earnings (P/E)      Stable earnings businesses         Negative earnings
Price/Sales (P/S)         Revenue-stage growth companies     Mature high-margin businesses
EV/Revenue                High-growth, low-margin SaaS       Mature, cyclical businesses
Residual Income (RI)      Financial companies, book-value    Asset-light businesses
Dividend Discount (DDM)   Dividend-paying value stocks       Growth stocks, no dividend
Asset-Based NAV           Real estate, holding companies     Operating businesses
────────────────────────────────────────────────────────────────────────────────────

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Method 1: Discounted Cash Flow (DCF)

Step 1: Base Financial Metrics

Collect trailing twelve months (TTM) data:

Base Metrics:
  Revenue (TTM):                    $___M
  Operating Cash Flow (TTM):        $___M
  Capital Expenditures (TTM):       $___M
  Free Cash Flow (TTM):             $___M  (OCF - Capex)
  FCF Margin (TTM):                 ___%
  Stock-Based Compensation (TTM):   $___M
  True Economic FCF (SBC-adjusted): $___M
  Diluted Shares Outstanding:       ___M
  Net Debt / (Net Cash):            $___M
  Effective Tax Rate:               ___%

Step 2: Three-Scenario Projections (10-Year)

Scenario Assumptions:
                        Bull        Base        Bear
Probability:            20%         60%         20%
Revenue CAGR Y1-5:      ___%        ___%        ___%
Revenue CAGR Y6-10:     ___%        ___%        ___%
FCF Margin Y5:          ___%        ___%        ___%
FCF Margin Y10:         ___%        ___%        ___%
WACC:                   ___%        ___%        ___%
Terminal Growth Rate:   ___%        ___%        ___%

Step 3: WACC Calculation

Cost of Equity (CAPM):
  Risk-Free Rate (10Y Treasury):  ___%
  Beta (5-year monthly):          ___
  Equity Risk Premium:            ___%
  Size Premium (if applicable):   ___%
  Cost of Equity:                 ___% = Rf + β × ERP + Size

Cost of Debt:
  Interest Expense (TTM):         $___M
  Total Debt:                     $___M
  Effective Interest Rate:        ___%
  Tax Rate:                       ___%
  After-Tax Cost of Debt:         ___%

Capital Structure:
  Equity Market Cap:              $___M
  Total Debt:                     $___M
  E/V (Equity Weight):            ___%