The discounted cash flow (or DCF) approach describes a method of valuing a project, company, or financial asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give them a present value. The discount rate used is generally the appropriate cost of capital, and may incorporate judgments of the uncertainty (riskiness) of the future cash flows.
Now I have developed a small script which can help you to find the fair value of stock provided you know the 3 parameters
- EPS or earnings per share.
- Growth Rate of company.
- How many years of such growth is sustainable.
Now the question comes how do you know all the data.
EPS would be very easy because you will get that in any finance site like moneycontrol.com / rediff money …
Now the most important thing is to get the growth rate of the company. One of the safe way is to keep that as 4 % but other one is, you can get EPS of previous years and based on them you can get the growth rate. Now keeping the no of years as 3 if you have 3 years old EPS and key in the EPS of previous years and checkout the EPS for the current year. Getting the best approx value would be the right and maintainable growth rate.
Now no of years would be your call because everything if is suggested by this small script then it would be GOD but then 3 years is always a better choice.
Note : * This is my script using DCF formula and if any share price does not hold correct instead of questioning me read the Disclaimer first.