Introduction

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The Margin of Safety Calculator estimates a potential purchase price for a company based on its current earnings, expected future growth, and estimated future valuation. It is designed to help investors think about what a business may be worth while building in a margin of safety that provides protection against uncertainty and overly optimistic assumptions.

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No valuation method can predict the future with certainty, so the results should always be used as one part of a broader investment process rather than as a precise estimate of fair value.​

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Where to Find the Data

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The quality of the calculation depends entirely on the assumptions you enter.

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Current earnings per share (EPS) can usually be found in a company's annual report or through financial data providers such as Finbox.

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For estimated earnings growth, I often use analyst consensus estimates from Finbox as a starting point before adjusting the assumption based on my own research and the company's long term prospects.

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Growth estimates are only forecasts, so remember that small changes in your assumptions can have a significant impact on the estimated intrinsic value.

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What You Need

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Current EPS: Enter the company's current earnings per share (EPS). This represents the profit generated for each outstanding share and forms the foundation for the valuation.

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Estimated Annual Growth Rate: Enter the annual earnings growth rate you expect the company to achieve. This assumption can be based on historical performance, management guidance, analyst estimates, industry trends, and your own assessment of the business.

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Understanding the Results

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Future EPS: Future EPS is the estimated earnings per share at the end of the projection period. It is calculated using the company’s current EPS and the annual growth rate you enter.

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Future Stock Price: The Future Stock Price is the estimated share price at the end of the projection period. It is based on the projected Future EPS and the valuation multiple used by the calculator.

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Target Purchase Price: The Target Purchase Price is the estimated value of the stock today after discounting the Future Stock Price by the required annual return used in the calculation.

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Suggested Current Stock Price with a 50% Margin of Safety: This is the Target Purchase Price reduced by 50%. It represents the price at which the calculator suggests there may be a larger margin for error if growth is weaker than expected or the future valuation proves too optimistic.

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Try the Calculator

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Enter the company's current EPS and your estimated annual growth rate below. Based on these inputs, the calculator automatically assumes a future P/E ratio equal to twice the estimated growth rate and a required annual return of 15%. It then estimates the Future EPS, Future Stock Price, Target Purchase Price, and a Suggested Current Stock Price based on a 50% margin of safety.

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