When the model is wrong

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Key idea: Models only see the numbers. Drug trials, lawsuits, new technology and management changes can make any estimate wrong.

Every model, including Equity Rank's, works from reported figures and estimates. It cannot read a clinical trial result before it is published, judge a new chief executive, or know that a key customer is about to leave.

Some businesses are especially hard for numbers alone: drug developers whose value rests on one trial, companies in the middle of a merger, firms whose profits depend on one contract, and businesses being disrupted by new technology.

Models also lag. Accounts are published weeks after a quarter ends, so a fast-changing situation can be stale on the page.

That is why Equity Rank publishes its own track record against the market and shows confidence and red flags next to its fair values. Treat a large gap between price and fair value as a question to investigate: often the market knows something the model does not.

Quick check

A drug developer trades 60% below its model fair value the week before a major trial result. What is the most sensible reading?

Read: what the model cannot see in biotech →

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

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Every fair value figure on Equity Rank is our model’s opinion of a company’s intrinsic worth under stated assumptions — it is not a prediction, forecast, or price target for where the security will actually trade. Fair value estimates describe what the model considers a business to be worth today, not where its market price is headed. Actual market prices are set by supply and demand and by factors no model can fully capture, and may differ materially and indefinitely from any fair value shown here.

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