NPV calculation you can do you on your phone (with examples for Pepsi, Reddit and Nike)

*(Note the flair: getting started)* The Fair price of a stock = Multiplier \* EPS To calculate the multiplier, we assume a 9% discount rate, 3% perpetual growth, and 10 year abnormal growth, then the formula is Multiplier = 1.xx * ( 1-(1.xx/1.09)^10) / (0.09 - 0.xx) + (1.xx ^10) * 7.25138551840 Where xx is the abnormal growth rate, eg. 0.05 (5%) At 5% growth rate for 10 years, with a discount rate of 9% and a perpetual growth of 3%, the multiplier is 1.05 \* ( 1-(1.05/1.09)\^10) / (0.09 - 0.05) + (1.05 \^10) \* 7.25138551840 = 20 Fair price = Multiplier \* EPS If one can be 100% sure that the variables are stable, then the P/E is the multiplier, which in this case is 20. —————— if N=10 years , then multiply 7.25138551840. (default) If n = 5 years then multiply by 11.1575546 n= 15 years , then multiply 4.71290304. (duration of 15% is best reserved for companies with super wide moats, like COSTCO, Moody's etc) Full equation: PV=EPS*(1+G1)*(1-((1+G1)/(1+I))^N)/(I-G1)+(EPS*(1+G1)^N*(1+GT))/((I-GT)*(1+I)^N) **CAVEAT**: if you have 9% growth and since the discount rate is 9%, you have get an error. The workaround is to have a discount rate at 0.00900001 it works well enough. ====== Examples: using those companies which recently announced earnings: **(1) Pepsi $pep** using FY2025 EPS as the nearest normalised EPS available: 8.14 management is guiding 5% growth but the reality is that they are struggling at 3$ growth at 3%, the multilier is around 17.1 at 5%, the multipllier is around 20 fair value price = EPS x multiplier at 3%, 8.14 x 17.1 = 139.194 at 5% 8.14 x 20 = 162.8 Morningstar fair value is $166. I would prefer to buy closet to 139 then at 162. **(2) Reddit $rddt** using FY2025 EPS, 2.62 there is not enought historical data to suggest what is possible, so we are relying mainly on future growth estimates from analysts. Year EPS estimates 2026e 4.04 2027e 5.76 2028e 7.77 2029e 9.86 2030e 13.74 CAGR = (13.74/2.62) \^ (1/5) -1 = 39.29% annualised We will use 5 years to be conservative because 10 years of 39.2% growth would be too optimistic. the multiplier = 1.3929 \* ( 1-(1.3929/1.09)\^5) / (0.09. - 0.3929) + (1.3929 \^5) \* 11.1575546 =69.57386401 fair value price = EPS x multiplier fair value price = $2.62 x 69.57386401 = 182.28 Morningstar fairvalue is $200 CFRA fairvalue is $167.00 **(3) Nike ($nke)** EPS in FY 2025 (may) is 2.16 May 2026 1.55 May 2027 2.31 May 2028 2.81 May 2029 4.47 May 2030 4.97 May 2031 5.52 May 2032 6.13 May 2033 6.77 May 2034 7.48 May 2035 8.26 This is a turnaround stock, so we need special handling, using 2.16 (may 2025) would not give an accurate reading because earnings is still going lower (see 2026 may). But if we use the May 2026 nos of 1.55, then we have to account for the V-shape recovery,. CAGR of (8.26/1.55)\^(1/9) -1 = 20.4% Mutiplier =1.204 \* ( 1-(1.204/1.09)\^10) / (0.09 - 0.204) + (1.204 \^10) \* 7.251385518464.41412474 = 64.41 Implied Value = 1.55 x 64.41 = $99.8 Morningstar fair value is $102. CFRA fair value is $60.01 Frankly, this method is not enough, i would have liked to use other methods to triangulate it. FIN