Stock Investing Glossary
The key terms of stock valuation, explained plainly and without jargon. Each term: what it means, why it matters and an example. The exact concepts behind every fair value we calculate.
Fair Value
What a stock is actually worth based on its business, not its share price.
Buy well below it and time is on your side; pay far above it and you are betting on hope.
Example: We put a fair value on 35,000+ stocks, every day.
Try it →Undervalued
When a stock trades below what the business is worth, its fair value.
It is the whole game: paying less than you get. Cheap and good is what compounds.
Example: A stock at 70 with a 100 fair value is 30% undervalued.
Try it →Overvalued
When the share price sits well above the fair value of the business.
You can still make money, but you are relying on hope and momentum, not value.
Example: Paying 150 for a business worth 100 leaves no margin for error.
Try it →Margin of Safety
The gap between a stock price and its fair value, your buffer against being wrong.
The bigger the discount, the more room your estimate has to be off and still be fine.
Example: A stock 40% below fair value has a large margin of safety.
Quality Score
Our 0 to 100 rating of a business: profitability, growth, balance sheet and moat.
Cheap AND high quality is the rare combination that compounds over decades.
Example: We show quality right next to fair value for every stock.
Try it →Moat
A durable competitive advantage that protects a company profits from rivals.
Wide moats keep a business profitable for decades. We score every stock on it.
Example: Brands, network effects and switching costs are classic moats.
DCF
Discounted cash flow, valuing a company by its future cash brought back to today.
It ties value to the cash a business will really earn, not the market mood.
Example: DCF is one of our 21 valuation models.
Try it →P / E ratio
Price divided by earnings per share, roughly how many years of profit you pay for the stock.
A quick read on how expensive a stock is, but it hides growth and quality.
Example: A P/E of 40 means paying 40 years of current profit.
Try it →Intrinsic Value
The real, underlying worth of a business, independent of its daily share price.
Price is what you pay, intrinsic value is what you get. The two often drift apart.
Example: Our fair value is our estimate of a stock intrinsic value.
Try it →Dividend Yield
The yearly dividend as a percentage of the share price.
It is the cash a stock pays you just for holding it.
Example: A 4% yield pays 4 per year on every 100 invested.
Try it →Free Cash Flow
The cash left after a company pays to run and grow itself.
It is the real money for dividends and buybacks, harder to fake than reported profit.
Example: Strong free cash flow funds dividends without borrowing.
ROE
Return on equity, the profit a company earns on shareholders money.
High, durable ROE is the mark of a strong, efficient business.
Example: A durable 20%+ ROE signals a high-quality compounder.
Try it →Bull vs Bear case
The optimistic and the pessimistic view of what a stock could be worth.
Seeing both sides keeps you honest and shows the range of outcomes, not one guess.
Example: We show a bear, base and bull fair value for each stock.
Compounding
Earning returns on your past returns, so growth builds on itself over time.
It is the quiet force behind long-term wealth. Time in the market does the work.
Example: 10% a year doubles your money in about 7 years.
Try it →Company fundamentals
The hard numbers a company reports about its business, revenue, profit, debt and cash flow, taken from the financial statements it publishes every quarter and year.
The share price moves on mood day to day; the fundamentals are the real business underneath. A fair value is only as good as the fundamentals it is built on.
Example: Every fair value we show starts from a company's own reported fundamentals.
Diversification
Spreading your money across different companies, sectors and countries, so no single one can sink the whole portfolio.
The most common weakness of a stock list is not one bad pick but that everything follows the same sector or country. Spreading the risk smooths the ride.
Example: Our watchlist shows at a glance how lopsided your list is by sector and region.
Fairly Valued
When the share price sits close to the fair value, neither a clear bargain nor clearly expensive.
Most stocks are roughly fairly valued most of the time; the edge is finding the exceptions.
Example: We flag each stock at a glance as undervalued, fair or overvalued.
Upside
How far a stock could rise to reach its fair value, shown as a percentage.
It turns a fair value into one plain number: how much room is left if the price catches up.
Example: A stock at 60 with a 90 fair value has 50% upside.
Value Trap
A stock that looks cheap but keeps falling because the business is quietly deteriorating.
Cheap alone is not enough; without quality, a low price is often a warning, not a bargain.
Example: We separate real bargains from value traps with the quality score.
Terminal Value
In a DCF, the value of all a company cash flows beyond the forecast years, rolled into one number.
It often makes up most of a valuation, so a sane long-term growth assumption matters more than it looks.
Example: We cap terminal growth near long-run GDP so no stock grows forever.
Discount Rate
The rate that brings future cash back to today value, higher for riskier companies and countries.
It sets how much tomorrow money is worth now; a higher rate means a lower fair value.
Example: Our discount rate carries a country risk premium, so the same profit is worth less in a riskier market.
Owner Earnings
Buffett measure of the real cash an owner could take out: profit plus depreciation, minus the investment needed to keep the business running.
It strips accounting noise and shows the cash a business truly throws off.
Example: The owner-earnings DCF is one of our valuation models.
Graham Number
Benjamin Graham quick ceiling for a defensive stock price, built from earnings and book value.
A fast, conservative sanity check on whether a stock is cheap enough for a careful investor.
Example: The Graham number is one of our 21 models.
PEG ratio
The P/E divided by the earnings growth rate, price set against how fast profits grow.
It puts a high P/E in context: a pricey stock can be reasonable if it grows fast enough.
Example: A PEG near 1 is often seen as fair for a growing company.
Peter Lynch Value
A fair value from Lynch rule of thumb that a fair P/E roughly equals a company growth rate.
A simple, growth-aware yardstick that rewards steady earnings growth.
Example: The Lynch model sits alongside DCF and multiples in our blend.
Earnings Power Value
The value of a company current, no-growth earnings capitalised, its worth if profits merely held steady.
It shows how much of a valuation rests on today profits versus future growth hopes.
Example: EPV anchors a valuation to what a business earns now.
Dividend Discount Model
Valuing a stock by the stream of dividends it is expected to pay, discounted back to today.
For steady dividend payers, the cash you receive is the clearest measure of worth.
Example: The DDM is our go-to model for reliable dividend stocks.
Residual Income
The profit a company earns above the cost of the capital it uses.
A business only creates value when it earns more than its capital costs; this measures exactly that.
Example: Residual income is one of the 21 models behind each fair value.
Reverse DCF
A DCF turned around: instead of guessing growth, it reads out the growth the current price already assumes.
It reveals expectations: is the market pricing in growth the business can realistically deliver?
Example: A reverse DCF shows when a popular stock is priced for perfection.
Market Multiples
Valuing a stock by comparing ratios like P/E or EV/EBITDA to the sector median and to comparable companies today.
A fast, market-based cross-check that keeps a valuation grounded in what similar businesses fetch.
Example: Multiples are one of the model families in our blend.
EV / EBITDA
Enterprise value divided by operating profit before depreciation, a P/E that also accounts for debt.
It compares companies fairly even when their debt loads differ, unlike the raw P/E.
Example: We use EV/EBITDA among our market-multiple models.
Enterprise Value
What it would cost to buy the whole business: market cap plus debt, minus cash.
It is the true price of a company, not just its equity, and the basis of every EV multiple.
Example: EV is the takeover price a buyer would actually pay.
P / B ratio
Price to book, the share price against the company net assets on the balance sheet.
A classic value gauge, most telling for banks and asset-heavy businesses.
Example: A P/B below 1 means paying less than the stated net assets.
P / S ratio
Price to sales, the share price against revenue per share.
Useful when profits are thin or volatile, since revenue is harder to distort.
Example: P/S helps value fast growers that are not yet strongly profitable.
ROIC
Return on invested capital, the profit a company makes on all the money it puts to work.
The clearest single measure of whether a business creates or destroys value.
Example: Durable ROIC above the cost of capital is the hallmark of a compounder.
ROA
Return on assets, the profit a company earns on everything it owns.
It shows how efficiently a business turns its assets into profit.
Example: We show ROA among the quality metrics on every stock.
Gross Margin
The share of revenue left after the direct cost of the goods or services sold.
High, stable gross margins often signal pricing power and a moat.
Example: A rising gross margin can be an early sign of strengthening quality.
Net Margin
The share of revenue that survives all the way down to net profit.
It sums up how much of each euro of sales the business actually keeps.
Example: Two firms with equal sales but different net margins are very different businesses.
Operating Margin
Profit from the core business as a share of revenue, before interest and tax.
It measures the health of the actual operations, stripped of financing and tax effects.
Example: A steady operating margin points to a durable business model.
Debt-to-Equity
A company total debt divided by its shareholder equity, a gauge of leverage.
High leverage lifts returns in good times and deepens the pain in bad ones.
Example: We flag stretched balance sheets inside the quality score.
Revenue Growth
How fast sales grow, often measured as a multi-year compound annual rate, or CAGR.
Durable revenue growth is the raw fuel of long-term value, if it comes with profit.
Example: We judge growth on a multi-year revenue CAGR, not one lucky year.
EPS
Earnings per share, a company net profit divided by its number of shares.
It is profit on a per-share basis, the number the P/E is built on.
Example: Rising EPS with a flat share count means real, per-owner profit growth.
Dilution
When a company issues new shares, shrinking each existing owner slice of the profits.
Heavy stock-based pay can quietly erode returns even as the business grows.
Example: We value on a per-share basis, so dilution is never hidden.
AI-Moat
Our evidence-grounded read of a company competitive advantage, scored across pricing power, innovation, brand and governance.
It turns the fuzzy idea of a moat into a comparable score, backed by real signals rather than opinion.
Example: Every stock carries an AI-moat score next to its quality.
Market Cap
The total value of a company shares: share price times the number of shares.
It sorts the market into small, mid and large caps, each with a different risk and growth profile.
Example: You can filter our 35,000+ stocks by market-cap size.
Cyclical Stock
A company whose profits swing with the economy, like carmakers, banks or miners.
At the top of a cycle a cyclical can look deceptively cheap on a high, fleeting profit.
Example: We treat cyclical earnings with care so a boom year does not overstate fair value.
ADR
An American Depositary Receipt, a US-listed stand-in for a foreign company shares.
It lets you buy a foreign business in dollars, but the same company can trade in several places.
Example: We match ADRs to their home listing so one company is not counted twice.
ETF Look-Through
Valuing a fund by adding up the fair values of the stocks it actually holds.
It answers what the ticker cannot: is the ETF itself cheap or expensive right now?
Example: We value every fund through the businesses inside it.
Confidence
How solid the data behind a fair value is, from the number of models and the depth of the fundamentals.
A fair value built on thin data deserves more caution than one built on years of clean numbers.
Example: We label each fair value low, medium or high confidence.
Screener
A filter that narrows thousands of stocks to the few that fit your rules on value, quality, size or sector.
It turns a huge market into a short, workable shortlist in seconds.
Example: Our screener filters 35,000+ stocks by fair value, quality and strategy.
Frequently asked questions
What is a stock's fair value?
Fair value is a stock's intrinsic worth derived from its fundamentals, independent of the current price. When the price sits below it, the stock is undervalued.
What is a margin of safety?
The gap between price and fair value. The bigger the discount, the more buffer you have if your estimate is off.