Why one method is never enough

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Key idea: Each valuation method has blind spots. Blending several, and seeing where they disagree, gives a sturdier estimate than trusting any one.

You have now met earnings multiples, free cash flow, DCF, EV/EBITDA and book value. Each answers the same question from a different angle, and each has a weak spot: P/E breaks on one-off years, DCF on growth guesses, EV/EBITDA on capital-heavy firms, book value on companies whose worth is in brands and software.

Using several methods and blending them reduces the damage any single blind spot can do. Just as useful is the spread between them. When five methods land within 10% of each other, the estimate is sturdier. When they range from $40 to $200, the honest conclusion is that the value is hard to pin down.

Equity Rank's fair value is a weighted blend, and the weights depend on the type of company. Every stock page shows the methods used, the weights, and how far apart they are, so you can see how much agreement sits behind the headline number.

Quick check

Five valuation methods for a stock give $48, $50, $51, $53 and $55. What does that tell you?

See the methods and weights for any stock →

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Educational content only, not investment advice. Examples use made-up or historical figures.

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