Why isn’t price the same as value?
A stock’s price is what buyers and sellers agree to pay today. It moves every second, driven by the market’s mood, the news, fear or excitement.
Value is something else: it’s what the company is worth given its profits and strength. A stock can cost $200 while the company is “worth” closer to $140 per share: then it’s overvalued. Or the reverse, $90 for a company worth $130: then it’s undervalued. The whole point is to compare the two.
What is the “estimated value”?
The estimated value is our estimate of what a share is worth based on the company’s numbers. Important: it isn’t a single number set in stone, but a range, with a low end and a high end. Nobody knows the future; giving a range rather than one bare number is simply honest.
Comparing today’s price to that range tells you whether the stock is trading expensively, around its worth, or at a discount to what it seems to be worth.
How do you read a discount or a premium?
When the price is below the estimated value, we call it a discount: the stock trades for less than it appears to be worth. When it’s above, that’s a premium: you’re paying up.
We sum this up with a valuation zone, from “Undervalued” to “Overvalued”. A beginner doesn’t have to calculate anything: they read the zone and see at a glance where today’s price sits relative to the estimated value.
Does “cheap” mean “a good deal”?
Here’s the most important trap. A stock trading far below its estimated value is a good deal only if the company is solid. A discount on a deteriorating company isn’t a markdown: it’s a warning. The market pays little because the future looks bleak.
That’s why we always look at quality before valuation. A quality company (good Q-Score) and at a discount: that’s what our method looks for. A discount alone, without quality, is often a mirage.
In practice
You don’t have to estimate every stock’s value yourself. Every night, we compare S&P 500 and CAC 40 prices to their estimated value and flag the ones trading at a discount, keeping only the companies whose quality holds up. Starting there is more prudent than starting from “the stock that fell the most”.