SweetValueLab

Valuation Methodology

Sweet Value Labuses 7 valuation models to estimate intrinsic value. Every assumption is visible and inspectable. Here's how each model works.

Cost of Capital (WACC)

All DCF models discount future cash flows using the Weighted Average Cost of Capital (WACC). Our calculation:

Cost of Equity= Risk-Free Rate + Beta × Equity Risk Premium (5.5%)
Risk-Free Rate = 10-Year US Treasury yield (live from FRED)
Cost of Debt= Interest Expense ÷ Total Debt (capped at 15%)
WACC= Cost of Equity × Equity Weight + Cost of Debt × (1 - Tax Rate) × Debt Weight
WACC is floored at 5% and capped at 25%. Beta sourced from FMP (market beta).

1–2. DCF Growth Exit (5Y & 10Y)

Projects free cash flow for 5 or 10 years, then calculates a terminal value using the Gordon Growth Model.

Revenue Growth: Analyst consensus estimates (when available), fading to 3% long-term GDP growth
Margins: 5-year historical averages for COGS, SG&A, R&D, CapEx, D&A
Free Cash Flow= NOPAT + D&A - CapEx - ΔNWC
Terminal Value = FCFn× (1 + g) ÷ (WACC - g), where g = 3% terminal growth
Fair Value= (PV of FCFs + PV of Terminal Value - Net Debt) ÷ Shares Outstanding
Sensitivity analysis varies WACC (±2%) and terminal growth rate (1%–5%).

3–4. DCF EBITDA Exit (5Y & 10Y)

Same FCF projection as above, but uses an EV/EBITDA exit multiple for the terminal value instead of perpetuity growth.

Terminal Value = EBITDAn× Exit Multiple
Exit Multiple: Industry median EV/EBITDA from peer companies (default 12x if insufficient peers)
Sensitivity analysis varies WACC (±2%) and exit multiple (8x–16x).

5. P/E Multiples

A relative valuation comparing the company to industry peers using Price-to-Earnings ratios.

Fair Value= Blended Industry Median P/E × Company TTM EPS
Blended P/E = Average of trailing and forward median P/E (when forward estimates available)
Range: 25th–75th percentile of peer P/E ratios × EPS
Peers filtered to same industry, valid P/E between 0 and 200.

6. EV/EBITDA Multiples

Enterprise value-based relative valuation, less affected by capital structure differences than P/E.

Fair Value= (Industry Median EV/EBITDA × Company EBITDA - Net Debt) ÷ Shares Outstanding
Range: 25th–75th percentile of peer EV/EBITDA
Peers filtered to same industry, valid EV/EBITDA between 0 and 100.

7. PEG Fair Value

A fairly priced stock has a P/E ratio equal to its earnings growth rate (PEG = 1.0). Includes dividend yield for the full PEGY variant.

Fair Value= (EPS Growth Rate + Dividend Yield) × 100 × NTM EPS
Growth Rate: Forward analyst consensus EPS CAGR (fallback: historical EPS CAGR), clamped to 8%–25%
Example: 12.7% adjusted growth × $8.48 NTM EPS = $108 fair value
Returns N/A for companies with negative EPS or insufficient history.

Fair Value

The headline fair value is derived from our primary DCF model — a 5-year unlevered Free Cash Flow to Firm (FCFF) projection with a Gordon Growth terminal value. All other models (FCFF EBITDA Exit, Trading Multiples, PEG, EPV) are shown on the summary page for reference and cross-validation.

Each company is automatically classified into one of 8 archetypes (e.g., High Growth, Mature & Stable, Cyclical) based on financial metrics including revenue growth, profitability, dividend yield, and earnings volatility. The archetype determines the terminal growth rate used in all DCF models.

Data Sources

Financial Statements: 5–7 years of annual data from SEC filings via Financial Modeling Prep
Analyst Estimates: Forward revenue and EPS consensus from Financial Modeling Prep
Risk-Free Rate: 10-Year US Treasury yield from FRED (Federal Reserve Economic Data)
Stock Prices: Daily close prices updated every trading day
Update Frequency: All data refreshed daily at 10:30 PM ET (weekdays)

Limitations

  • All models rely on historical data and analyst estimates which may not predict future performance
  • DCF models are highly sensitive to WACC and terminal value assumptions
  • Relative valuation depends on peer selection and may not capture company-specific factors
  • Financial companies (banks, insurance) may require specialized models not yet implemented
  • Beta is sourced from FMP without Blume adjustment; actual cost of equity may differ

Sweet Value Lab is for informational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.