Alexander at Wealth Junkie recently wrote about a new valuation tool being offered at Smartmoney.com. The Price Check Calculator loads a Java based program where you can enter a stock ticker and the program automatically retrieves earnings per share, a detailed EPS growth rate based on analyst estimates, current price, and beta. I like the fact that you can adjust these variables along with the length of the growth period, the perpetual growth rate, the discount rate (called Benchmark return in this program), and the risk factor.
One thing to note, this model relies on using earnings per share, which can be dangerous if the company you are analyzing is using aggressive accounting. I prefer to examine a company’s free cash flows for the past three to five years when estimating value, because free cash flows help avoid accounting shenanigans and one time events. One way to address this issue is to manually replace the earnings per share in the SmartMoney calculator with free cash flow per share. It’s a shame that SmartMoney’s calculator did not build in the option to select free cash flow instead of earnings per share. However, with some careful thought and analysis, this tool can provide helpful valuation estimates.