Sticker Price & Margin of Safety
Calculate whether purchasing a stock at its current price will enable you to earn 15% returns over 10 years.
Use analyst estimates or historical rate
Default: 2× growth rate
Rule #1 standard: 15%
Future EPS
$0.00
Future Value
$0.00
Sticker Price
$0.00
Margin of Safety
$0.00
| Metric | Value |
|---|---|
| Current EPS | $0.00 |
| Est. EPS Growth Rate | 0% |
| Future P/E | 0 |
| Sticker Price | $0.00 |
| Margin of Safety (50%) | $0.00 |
What is Sticker Price?
Sticker Price is the true value (intrinsic value) of a company based on its future earnings potential. It represents the maximum price you should pay for a stock to achieve your minimum acceptable rate of return (typically 15% for Rule #1 investors).
What is Margin of Safety?
The Margin of Safety is a discount to the Sticker Price that protects you from errors in your calculations and unforeseen circumstances. Warren Buffett recommends buying at 50% of the Sticker Price—this gives you a large margin of safety.
Rule #1 Buying Strategy
Only buy when the current stock price is at or below the Margin of Safety price. This ensures you're buying a wonderful company at an attractive price.
How the Calculation Works
- Future EPS: Current EPS grown at the estimated growth rate over your time horizon.
- Future Value: Future EPS multiplied by the future P/E ratio.
- Sticker Price: Future Value discounted back to today at your minimum rate of return.
- Margin of Safety: 50% of the Sticker Price—your maximum buy price.
Estimating Future P/E
A common rule of thumb is to use 2× the growth rate as the future P/E ratio. For example, if you expect 10% EPS growth, use a P/E of 20. However, you should also consider historical P/E ranges and industry comparisons.
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