What is intrinsic value?

The true worth of a business based on the cash it will generate over its life, discounted to today's dollars — as opposed to its current market price.

What is margin of safety?

The discount between a stock's price and your estimate of its intrinsic value. Buying with a margin of safety (often 25–50%) protects you when your assumptions turn out too optimistic. Graham called it the three most important words in investing.

What is graham number?

The square root of (22.5 × EPS × book value per share) — Benjamin Graham's estimate of the maximum price a defensive investor should pay. A price below it signals statistical undervaluation.

The price-to-earnings ratio divided by the sum of the earnings growth rate and the dividend yield. Popularized by Peter Lynch, a PEGY at or below 1.0 suggests reasonably priced growth plus income.

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Glossary

Value investing terms, in plain English

The vocabulary behind every Valuo verdict — defined clearly, with links to the formulas that use them.

Intrinsic value: The true worth of a business based on the cash it will generate over its life, discounted to today's dollars — as opposed to its current market price. Estimated with a DCF model.
Discounted cash flow (DCF): A valuation method that projects a company's future free cash flow and discounts it back to the present using a required rate of return, then sums it to estimate intrinsic value. See the full walkthrough.
Free cash flow (FCF): Operating cash flow minus capital expenditures — the cash a business truly has left over for its owners after funding its operations and reinvestment.
Margin of safety: The discount between a stock's price and your estimate of its intrinsic value. Buying with a margin of safety (often 25–50%) protects you when your assumptions turn out too optimistic. Benjamin Graham called it the three most important words in investing.
Graham Number: The square root of (22.5 × EPS × book value per share) — Benjamin Graham's estimate of the maximum price a defensive investor should pay. A price below it signals statistical undervaluation. Why 22.5?
Book value per share: Shareholders' equity (total assets minus total liabilities) divided by shares outstanding — the accounting net worth backing each share.
PEG ratio: The price-to-earnings ratio divided by the earnings growth rate. A PEG near 1.0 suggests a stock is fairly priced for its growth.
PEGY ratio: The price-to-earnings ratio divided by the sum of the earnings growth rate and the dividend yield. Popularized by Peter Lynch, a PEGY at or below 1.0 suggests reasonably priced growth plus income. Learn more.
Dividend yield: A company's annual dividend per share expressed as a percentage of its current share price.
Sticker price (Rule #1): Phil Town's estimate of a stock's fair value: projected future earnings turned into a future price, discounted back to today. Rule #1 only buys at roughly half the sticker price — a 50% margin of safety.
Discount rate: The rate used to convert future cash flows into present value in a DCF. It reflects the return an investor requires and the riskiness of the cash flows; a higher rate lowers intrinsic value.
Terminal value: In a DCF, the estimated value of all cash flows beyond the explicit projection window, usually via a modest perpetual growth rate. Because it can dominate the total, its growth assumption is kept conservative.
Economic moat: A structural advantage — brand, network effects, switching costs, cost advantages, or scale — that protects a company's profits from competitors over time. Central to Warren Buffett's quality test.
Reverse DCF: Runs a DCF backwards: instead of estimating value from growth, it solves for the growth rate the current price already implies — showing what expectations are baked into the stock today.
Composite score: Valuo's at-a-glance read of overall business quality across all four frameworks. It measures quality — not whether the stock is cheap today, which is shown separately as margin of safety.

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