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Fundamental Stock Valuation on an Open Platform

September 3, 2013 in External Projects, Featured, Open Data

Investors have traditionally relied on Wall Street analysts for projections of companies’ intrinsic values.  Wall Street analysts typically come up with their valuations using Discounted Cash flow (DCF) analysis. However, they do not disclose the proprietary models used for arriving at buying, selling or holding recommendations. ThinkNum has a solution which allows users to build their own models.

A cash flow model is a tool for translating projections of a company’s future operating performance like revenue growth and costs of goods into an intrinsic value for the company. Without viewing the assumptions underlying a model, a leap of faith is required in order to use the model’s outputs. With Thinknum, users can view and change any formula or assumption that drives the valuation. The interactive nature of the application allows users to conduct ‘what-if’ analysis to test how sensitive a company’s valuation is to changes in a specific performance measure.

To get started, all that is needed is a stock ticker. After entering the ticker, Thinknum displays a model using the mean of analysts’ revenue growth projections. We load the historical numbers for the company’s balance sheet, income statement and the statement of cash flows from corporate filings.  We then use the growth assumptions to project how the company’s financial performance will evolve over time and how much value will ultimately accrue to shareholders. Users can modify the model or build one from scratch. Users can also download the models into Excel spreadsheets.

Google DCF 3 Statement Model pictured above is an example of a model I recently built for valuing Google’s stock price. If you disagree with my assumptions of Google’s revenue growth you can simply change those assumptions and compute the new value. DCF models can be used to make rational investment decisions by comparing the model’s intrinsic value to the current market price.

One important caveat is any model is only as good as the assumptions underlying it. We provide data from over 2,000 sources in an attempt to place proper context around companies and help analysts make the best assumptions based on all the information available. ThinkNum users can plot any number in the cash flow models over time. Visualizing numbers over time and comparing metrics across the industry help users gain insight into the company’s historical performance and how such performance might vary going forward. For example, simply type total_revenue(goog) into the expression window to pull up the total historical revenue for Google. You can then click on the bar graphs to pull up the corporate filings used in the charts.

We are excited about the role the web can play in helping us make better decisions by rationally analyzing available data.

4 responses to “Fundamental Stock Valuation on an Open Platform”

  1. Mike says:

    Great App Gregory. It’s nice of you to give the public an opportunity to perform valuations using Discounted Cash flow (DCF) analysis. This App gives the general public the ability to build their own valuation models and use it to arrive at buying, selling or holding decisions. Good job!

  2. Patrick says:

    The ThinkNum app will be a game changer for those analyst who have dreamed of having Wall Street in their lap. This is a great achievement Gregory. Please keep coming up with more ideas to fully evolve ThinkNum to new heights.

  3. Shashi G says:

    Hi, I tried your web application ‘Cash Flow Model’ to translate projections of google’s future operating performance, revenue growth and costs of goods sold into today’s value. I changed my formula/assumptions and was able see the change in value. I was able to download it to Excel. I was able to plot several cash flow models over time. Based on this I plan to buy GOOG tomorrow 🙂 I think this is a very useful tool, it will help me compete with the big boys @ Wallstreet. I wish I had it many years ago!

  4. Chris says:

    Discounted cash-flow analysis seems to do the trick with regards to company valuations and performance levels, as they are readily available to potential investors, and the general public. I do believe that these figures can be manipulated (by changing proprietary models to suit the company) , and it is for this reason that the ‘cash-flow model’ is an excellent idea. ‘What if’ situations can be addressed, and, with a bit of know how, a liquidity position, along with other similar indicators of the company’s performance can be calculated. This type of tool can be used by both potential shareholders\investors, as well as the management of the entity. Great app!

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