Labs/Paths/Equity Valuation Practitioner
Curated learning path
Intermediate
2.3 hr · 5 labs

Equity Valuation Practitioner

From Multiples to DCF to Fair-Value Convictions

Five different ways to value a stock, when to use each, and how to triangulate them into a defensible price target. Practical workflow used at every long-only fund.

Equity analysts, sell-side associates, MBA students with intro finance.

By the end you will…
Value any company using DDM, multi-stage DDM, FCFE, FCFF/DCF, and comparable multiples.
Compute a defensible WACC and use it as the discount rate.
Triangulate multiple methods into a fair-value range, not a single number.
Sense-check valuation against the SML and its implied required return.
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The journey

5 stops · 2.3 hr of focused work · Intermediate

1
Stop 1 · 40 min · Valuation
Stock Valuation
Dividend Discount Model (Gordon, multi-stage), P/E multiples, FCF/DCF.
DDM, multi-stage DDM, FCFE, FCFF/DCF — all in one workspace.
Open lab →
Worked example
Gordon Growth on a mature dividend payer (D₁=$4.20, r=10%, g=4%)
P₀ = D₁ / (r − g)
= $4.20 / (0.10 − 0.04)
P₀ = $70.00
2
Stop 2 · 25 min · Risk & Return
Risk Decomposition
Split a stock's risk into systematic (β-driven) vs idiosyncratic.
Split the risk: how much is market-driven vs idiosyncratic?
Open lab →
Worked example
Risk decomposition for AAPL (β-driven vs firm-specific).
Component% of VarianceSource
Systematic (β·σ_m)²62%Market-wide moves
Idiosyncratic (σ_ε²)38%Firm-specific news
Total σ²100%—
Diversifying away the 38% idiosyncratic piece is free.
3
Stop 3 · 25 min · Asset Pricing Models
CAPM Calculator
Live β regression, expected return via Capital Asset Pricing Model.
Get a defensible discount rate (cost of equity) for any stock.
Open lab →
Worked example
Cost of equity for a Russell 1000 name with β = 1.10
Ke = Rf + β·(Rm − Rf)
= 4.0% + 1.10·(10.0% − 4.0%)
Ke = 10.6% → use this as the discount rate in your DCF
4
Stop 4 · 25 min · Asset Pricing Models
Security Market Line
Plot the SML; find under and overpriced assets via Jensen's α.
Cross-section view: is the current price above or below the line?
Open lab →
Worked example
Sample SML — find names with positive realized α (above the line).
PGMSFTNVDAβ →↑ E(r) %α > 0 (above SML)α < 0 (below SML)
5
Stop 5 · 25 min · Performance Measurement
Sharpe / Treynor / Jensen
Compute every major risk-adjusted return ratio side-by-side.
Test if the stock has actually delivered risk-adjusted alpha historically.
Open lab →
Worked example
Stock vs S&P benchmark — does the realized record support the thesis?
Sharpe
0.85
vs 0.66
Treynor
0.072
vs 0.060
Jensen α
+1.2%
vs —

Apply what you learned

Real-world scenarios that pull together the path. Each links back to the Labs you just used.

Case Study

Triangulating a fair value for AAPL: 3 methods, 1 conviction

Apple trades at $185. A multi-stage DDM with the current $1.00 dividend, 8% growth for 5y then 3% terminal, and a 9.5% required return → $145. A FCFF/DCF with explicit FCF projections, 8.5% WACC, and 2.5% terminal growth → $172. Comparable analysis using a 28× P/E (median of MSFT, GOOGL, MSI) on $7.50 EPS → $210. Three methods give a $145-$210 range; the centroid is ~$175, suggesting AAPL at $185 is fairly to slightly overvalued — a HOLD, not a screaming BUY. The Stock Valuation Lab runs all three methods side by side with your custom inputs.

Case Study

When DCF lies: why high-growth tech needs a real-options overlay

Run a 'standard' DCF on a hyper-growth name like SHOP at 25% revenue growth, 15% terminal margins, 10% WACC → some massive number that depends entirely on terminal-value assumptions (which can be 80% of intrinsic value). Sensitivity-test by walking WACC from 9% to 12% and terminal growth from 2% to 4% — you'll see fair value swing 3x. Lesson: DCF is necessary but insufficient for growth names. Triangulate with EV/Sales multiples vs growth-stage peers and use an SML check on realized β. The Stock Valuation Lab's sensitivity tab makes this quick.

Free for any classroom or self-study use. Each Lab works standalone too — this path is one suggested ordering of the foundations.