Fair Value

Fair value represents the estimated intrinsic worth of a stock based on fundamental analysis rather than its current market price. It answers the question: what should this stock be worth based on the company's financials, growth prospects, and risk profile?

Unlike market price, which fluctuates based on supply and demand, fair value is calculated using objective financial data and established valuation methodologies. The three most common approaches are discounted cash flow (DCF) analysis, relative valuation against sector peers, and analyst consensus price targets.

Fair Price Index combines all three methods into a single fair price for each stock: DCF analysis at 50% weight, relative valuation at 30% weight, and analyst consensus at 20% weight. This blended approach reduces the risk of any single model's limitations skewing the result.

When a stock's market price exceeds its fair value, the stock is considered overvalued. When the market price is below fair value, the stock is undervalued and may offer a margin of safety for investors.