Margin of Safety Calculator and Sticker Price Evaluator
Calculate whether purchasing a stock at its current price will enable you to earn 15% returns over 10 years.
Use this calculator to determine the on sale buy price of your company.
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 |
Quick Example
- Future EPS: 11
- Future Value: 254
- Sticker Price: 63
- Margin of Safety: 31
When entering the Estimated EPS Growth Rate, remember to choose the lower of either the historical Growth Rate or the Analysts' Earnings Estimate, but never over 15%.
If you're curious about how to choose the right growth rate, check out Chapter 9 of Rule #1. Trust me, it's worth it.
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?
No one wants to lose money. That's where the margin of safety comes in.
This isn't a fancy accounting or investing term. It's a practical safety formula that helps you buy into a business at a discount. Usually, this means 50% off the sticker price or fair value.
Why? The best investors, like Benjamin Graham, know the market can be unpredictable. A little extra cushion never hurts.
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.
Next Steps: Use the Investment Calculators
Once you've found a good margin of safety, move on to the Return on Investment Calculator. This calculator determines ROIC; the most important number to tell you if a business is being run well.
ROIC Calculator
The most important number to tell you if a business is being run well.
Calculate ROIC →
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