Methodology
Valuation methodology
Objective, inputs, calculation, interpretation, assumptions, limitations and data sources.
Answer
Vestmind expresses valuation as zones derived from explicitly stated assumptions about growth, margin and the multiple a market is willing to pay, rather than as a single target price. The assumptions are shown alongside the zone, because a target price is a range with its assumptions hidden.
Objective
To let an investor disagree with an assumption rather than with a number, which is the only form of disagreement that leads to a better decision.
Inputs
- Normalised historical financials: revenue, margin, capital employed, cash flow.
- The company's own valuation history and that of its peer set.
- Stated assumptions for growth, margin and exit multiple, with a base case and bracketing cases.
- Cost of capital, stated rather than embedded.
Calculation
- Relative. Current multiples against the company's own history and against peers, on normalised earnings and on capital employed.
- Earnings power. A view of sustainable earnings through a cycle rather than at the current point in one.
- Discounted cash flow. Where cash flows are predictable enough to justify it, with the discount rate and terminal assumptions stated rather than embedded.
- Zones. The three approaches produce a range. Where they disagree materially, the disagreement is reported rather than averaged away.
Interpretation
A zone says what follows from the stated assumptions. It says nothing about what the price will do.
Disagreement between methods is information: it usually means the business is at an unusual point in its cycle, or that the market is pricing something the financials do not yet show.
The output is a Vestmind calculation from stated assumptions, labelled as such.
Assumptions
- Normalised financials represent the underlying business.
- The peer set is genuinely comparable.
- A cycle-average margin is a better base than the current margin for a cyclical business.
Limitations
- A discounted cash flow is arithmetic performed on guesses; its precision is not accuracy, and small changes in terminal assumptions move the answer more than anything else in it.
- Relative valuation inherits whatever mispricing exists in the peer set.
- None of the three approaches accounts for a change in the business that has not yet appeared in reported numbers.
- No valuation method establishes timing.
Sources
- National Stock Exchange of India — listed company disclosures and index constituents
How Vestmind does this
VestCall is Vestmind's AI stock analysis product. It assembles a complete view of a listed Indian company — business quality, financial history, valuation zones, analyst consensus, the investment case and the risks against it — and states what changed and why it matters.