What is the Tykr fair value formula?

As mentioned on Investopedia.com, “There is no universal standard for calculating the intrinsic value of a company.”

The Fair Value is the estimated share price of a stock in 10 years.

#### Inspiration Behind the Tykr Fair Value Formula

The Tykr fair value formula is inspired by Benjamin Graham and Phil Town but with a few modifications. Phil Town’s method adds a more dynamic perspective, incorporating growth assumptions into the valuation. You may learn more about Phil’s calculations and principles in his books (Rule #1, Payback Time, and Invested). Graham’s approach, known for its rigorous and conservative stance, focuses on fundamental metrics to determine a stock’s worth.

#### Comparing Fair Value Formulas

#### The Swim Lane Adjustment

The Tykr fair value formula features what we call a “Swim Lane” to handle variations in EPS growth rates. This adjustment ensures that companies with extremely high or low growth rates are accurately represented. If the Annualized EPS Growth Rate is 30% or higher, it’s capped at 30%, while

**Fair Value Calculation Equation + Examples**

**Equation:** (Share Price*(1+Annualized EPS Growth Rate)^10)/4 = Tykr Fair Value formula

- If the Annualized EPS Growth Rate is equal or greater than 30%, the highest growth rate is set to 30%.
- If the Annualized EPS Growth Rate is equal or less than 15%, the lowest growth rate is set to 15%.

Where…

- Share Price = Current Share Price
- Annualized EPS Growth Rate = Annualized EPS Growth Rate over 4 years
- 10 = 10 years for the Rule of 10
- 4 = Conservative estimate

Data inputs you’ll require…

- Share Price
- EPS = EPS TTM
- EPS4 = EPS 4 Years Past
- 10
- 4

**Check out Equation 1 below **

Equation 1 Description: We need to determine the total EPS growth rate over 4 years.

Equation 1: (EPS – EPS4)/(ABS(EPS4)) = Total EPS Growth Rate

**Here’s how Equation 2 looks**

The task for Equation 2 is to compute the yearly EPS growth rate across four years.

Equation 2: (1+(Total EPS Growth Rate))^(1/4)-1 = Annualized EPS Growth Rate

- If the Annualized EPS Growth Rate is equal or greater than 30%, the highest growth rate is set to 30%.
- If the Annualized EPS Growth Rate is equal or less than 15%, the lowest growth rate is set to 15%.

**Below is Equation 3**

Equation 3 Description: Now we need to determine the Fair Value.

Equation 3: (Share Price*(1+Annualized EPS Growth Rate)^10)/4 = Tykr Fair Value

**Fair Value Calculation for Google (GOOGL)**

**Example 1: GOOGL (Google)**

Data inputs you’ll require…

- Share Price = $1,731
- EPS = 49.59
- EPS4 = 23.11
- 10
- 4

**Listed Below is Equation 1**

Equation 1 Description: We need to determine the total EPS growth rate over 4 years.

Equation 1: (EPS – EPS4)/(ABS(EPS4)) = Total EPS Growth Rate

Equation: (49.59 – 23.11)/(ABS(23.11)) = 114.58%

**Take a look at Equation 2**

For the purpose of Equation 2, assess the EPS growth rate on a yearly basis over four years.

Equation 2: (1+(Total EPS Growth Rate))^(1/4)-1 = Annualized EPS Growth Rate

Equation: (1+(1.1458))^(1/4)-1 = 21.03%

**Below you will find Equation 3**

Equation 3 Description: Now we need to determine the Fair Value.

Equation 3: (Share Price*(1+Annualized EPS Growth Rate)^10)/4 = Tykr Fair Value

Equation: (1,731*(1+.2103)^10)/4 = $2,918.92

**Fair Value Calculation for Facebook (META)**

**Example 2: FB (Facebook)**

Data inputs you’ll require…

- Share Price = $277
- EPS = 6.48
- EPS4 = 1.31
- 10
- 4

**Here is Equation 1**

Equation 1 Description: We need to determine the total EPS growth rate over 4 years.

Equation 1: (EPS – EPS4)/(ABS(EPS4)) = Total EPS Growth Rate

Equation: (6.48 – 1.31)/(ABS(1.31)) = 394.66%

**This is how Equation 2 looks like**

Description of Equation 2 : We need to determine the annualized EPS growth rate over those 4 years.

Equation 2: (1+(Total EPS Growth Rate))^(1/4)-1 = Annualized EPS Growth Rate

Equation: (1+(3.9466))^(1/4)-1 = 49.13%

The Annualized EPS Growth Rate is 49.13% which is higher than 30%. So, in this case, we change the Annualized EPS Growth Rate to 30% below.

**Find Equation 3 below**

Equation 3 Description: Now we need to determine the Fair Value.

Equation 3: (Share Price*(1+Annualized EPS Growth Rate)^10)/4 = Tykr Fair Value

Equation: (277*(1+.3)^10)/4 = $954.67