A per-share value from projected earnings: grow EPS for a number of years, apply an exit P/E, discount back to today and subtract a margin of safety. A quick screen, not a full DCF.
Formula: IV = EPS × (1+g)ⁿ × terminal P/E ÷ (1+r)ⁿ × (1 − margin) defaults: n = 5, P/E 15, r = 10 %
How to read it: The result already includes the margin of safety, so a market price below it suggests undervaluation even after that cushion. Very sensitive to growth and exit P/E — stress-test with pessimistic inputs. Example: EPS 10, g 15 %, margin 25 % → 140.50.
Based on discounting future earnings, the approach popularised by Benjamin Graham and Warren Buffett. The margin of safety — Graham's key idea — lowers the value to protect against forecasting error.