Methodologies, Valuation, Value Investing

Valuation Methodology of John Price from

I stumbled upon an article by John Price published on, which led me to his website He has put together a neat software that supposedly implements Buffett’s methods. While the software is not free, the website does come with a few videos that showcase the software. If you take a look at the videos, you can basically see John Price’s stock picking / valuation methodology.

Some quick points:

  1. His software comes with a screener that allows you to screen companies by
    • ROE – default 10%
    • Market capitalization – default $50 mil
    • Years of history available – default 4 years
    • Debt/Equity ratio – default 50%
    • Current ratio – default 1.5
    • Quick ratio – default 1.0
    • Interest cover – default 2.0
    • Industry category
    • Stability of earnings (some proprietary measure)
    • Stability of sales (some proprietary measure)
  2. Comes with a roll-back feature that allows you to perform your analysis as though you are standing at some point in the past (software loaded with 10 years of data).
  3. Allows charting of historical data (e.g. ROE, ROC, EPS growth, sales growth).
  4. Performs projections and calculates the IRR given the following main inputs:
    • Current price
    • EPS (ttm)
    • P/E ratio at terminal year – average of past few years
    • EPS growth rate – seems to be the average of “CAGR taking the start/end points” and “average annual EPS growth rate over the past few years”
    • Payout ratio – average of past few years
    • No. of years to project earnings growth – default 5 years
    • Tax rate on dividends
    • Tax rate on capital gains
  5. Also calculates a maximum price to pay to obtain your “required return”.
  6. Margin of Safety is done by calculating the minimum IRR that you would get in the worst case scenario (playing with the inputs above), and see if that minimum IRR is acceptable.

John Price has also set up an excellent website called Stable Growth Companies, very similar to the Magic Formula Investing website by Joel Greenblatt, that will list a ranking of companies based on the stability of their earnings (using his proprietary measure). Good to check out.


No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Copyright © 2005-2014 All Rights Reserved.

Enter your email address to follow this blog and receive notifications of new posts by email.

Blog Stats

  • 397,970 hits
%d bloggers like this: