Cantillon Research · Free tool

What is the price assuming?

Every share price is a bet on the future. Type in one number you can find on any stock page and see how fast the business has to grow to be worth what people are paying today. Then ask yourself: do you believe it?

The company

Shown on every stock page at Avanza, Nordnet and Yahoo Finance, often as "P/E" or "P/E-tal".
times
Where do I find it?
  • Avanza: open the stock, scroll to "Nyckeltal", read "P/E-tal".
  • Nordnet: open the stock, the key figures box shows "P/E".
  • Yahoo Finance: the summary tab lists "PE Ratio (TTM)".
  • Price to free cash flow: fewer sites show it. Finviz lists it as "P/FCF". It is the better number when a company has big one-off items in its profit.

If the P/E is missing or negative, the company made a loss last year, and the price rests entirely on future profits.

For example how much profit or sales grew a year over the last three to five years.
% a year
Change the assumptions
The yearly return you demand for owning the stock. We use 9%.
% a year
After this, growth settles at the long-run rate.
years
Roughly the economy's long-run growth. We use 2.5%.
% a year
Try an example:

The answer

How to read the answer

The tool works backwards. Instead of guessing what a company is worth, it takes the price as given and asks what has to happen to justify it. If the answer is a growth rate the business has rarely or never delivered, the price leaves little room for disappointment. If it is lower than what the business already does, the market is being cautious.

Neither answer tells you to buy or sell. A demanding price can be right for an exceptional business, and a modest one can be a trap if the business is shrinking. The point is to know which bet you are making.

Where to find the numbers

  1. Market value: any finance site lists it as "market cap".
  2. Cash minus debt: the balance sheet in the annual report. Take cash and short-term investments, subtract all borrowings.
  3. Owner earnings: the cash flow statement. Operating cash flow, minus capital expenditure, minus stock-based compensation.

Every Cantillon File shows these in its free chapters, with a link to the filing each number came from.

The method

A reverse discounted cash flow. Owner earnings grow at a steady rate for the years you choose, then at the long-run rate forever after. Each year's cash is discounted back at the return you want. The tool searches for the growth rate that makes all of it add up to today's market value minus net cash. It is the same method used in chapter 05 of every Cantillon File.

Members get this done for every company.

Chapter 05 of each Cantillon File runs this with the company's own figures, shows how the answer moves with the return you demand, and splits the price into what today's business is worth and what you are paying for growth. See membership →