Fair Buy Price (Revenue Projection)
Full top-down stock valuation: project revenue, margin, and share count forward to a year-n EPS, apply an exit P/E to get a future share price, discount that price back at your required return, and optionally cut it by a margin of safety.
When to use: Use as the main valuation tool when you want a concrete buy price rather than a multiple. Set the required return to the hurdle you actually demand (10% to 15% is typical) and the exit P/E to a multiple the business plausibly deserves once growth normalizes. Leave the share count change and margin of safety blank to model a flat share count and no discount.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| FairPrice | Fair Buy Price | Most you should pay per share today to hit the required return | $ |
| Rev0 | Current Revenue | Trailing twelve-month revenue, in the same units as share count | $ |
| gRev | Revenue Growth Rate | Expected compound annual revenue growth as a decimal | % |
| NetMargin | Net Margin | Net income ÷ revenue, as a decimal | % |
| Shares | Shares Outstanding | Diluted shares outstanding | integer |
| s | Share Count Change | Annual change in diluted shares as a decimal; negative for buybacks, positive for dilution | % |
| n | Holding Period | Years held before exit | years |
| ExitPE | Exit P/E Ratio | Expected price-to-earnings multiple at exit | integer |
| r | Required Return | Annual required rate of return as a decimal | % |
| MOS | Margin of Safety | Discount applied for valuation cushion as a decimal | % |
Real-Life Examples
Example 1: Large-Cap Compounder (no MOS)
A $390B-revenue franchise earns a 25% net margin on 15.2B shares. You expect 6% revenue growth for 5 years, a steady margin, a 2.5% annual buyback, and a 22× exit multiple. You require 12% and apply no margin of safety.
Given
Step-by-Step
Pay up to $121.62 a share today to earn 12% a year over five years. Above that price the same forecast delivers less than your hurdle rate.
Example 2: Mid-Cap Grower with 30% MOS
A $2.4B-revenue software business earns a 12% net margin on 180M shares, with 2% annual dilution from stock compensation. You model 15% revenue growth for 10 years and an 18× exit multiple, require 15%, and demand a 30% margin of safety.
Given
Step-by-Step
Ten years of 15% growth justifies only $23.63 today, and the 30% cushion pulls the buy price to $16.54. Long projections plus a high hurdle rate leave far less room than the growth rate suggests.
Frequently Asked Questions
Maximum Stock Price starts from today's EPS and grows it directly. This formula reaches the same place through the business: revenue, margin, and share count. That decomposition matters when margins are expected to move or when buybacks and dilution are large, because those effects are invisible in a single EPS growth rate.
Use a multiple the business deserves once growth has normalized, not the one it trades at during a boom. A durable, slow-growing franchise supports the high teens to low twenties; a mature, capital-heavy business rarely holds above the low teens. The exit multiple is usually the single most influential input, so test a range rather than trusting one number.
Set it to the hurdle you actually demand, not to a theoretical cost of capital. Many fundamental investors use 10% to 15%: a higher hurdle produces a lower buy price and demands more patience, while a lower hurdle lets you pay up but leaves less room for the forecast to be wrong.
They do different jobs. The required return prices the time value of holding the stock; the margin of safety prices your uncertainty about the forecast itself. Leave MOS blank when the inputs are already conservative, and raise it to 25% or 30% when growth, margin, or exit multiple are genuine guesses.
Growth and the discount rate both compound over n years, so a one-point change in either moves the result by several percent per year of holding period. That sensitivity is the point: run the calculation across a range of assumptions with the What If panel and treat the overlap of the pessimistic cases as your buy price, not the single most likely case.