Price vs. Fair Value: How MoatScope Estimates Worth

One of MoatScope's core features is the Price-to-Fair-Value (P/FV) ratio — the X-axis of the scatter plot. Understanding how fair value is calculated, and what P/FV tells you, is essential to using MoatScope effectively.

The Fair Value Formula

MoatScope's fair value estimate is based on owner earnings — a concept popularized by Warren Buffett. Owner earnings represent the cash a business generates for its owners after maintaining its productive capacity:

Owner Earnings = Net Income + Depreciation & Amortization − Capital Expenditures

The fair value calculation applies a multiplier to these owner earnings, then adjusts for the balance sheet (adding cash, subtracting debt), and divides by shares outstanding to arrive at a per-share intrinsic value estimate.

Three Scenarios

MoatScope provides three estimates to capture a range of outcomes. The Conservative estimate (14× multiplier) represents a pessimistic scenario — the kind of price a value investor would consider a bargain even under adverse conditions. The Base estimate (27×) represents a reasonable central case. The Optimistic estimate (40×) captures an upside scenario with sustained growth.

The P/FV ratio shown on the scatter plot and in the stock table uses the Base (27×) estimate as its reference point. A P/FV of 0.75× means the stock trades 25% below base fair value; 1.50× means it trades at a 50% premium.

How to Use P/FV

We designed P/FV to be most useful in combination with the Quality Score. A low P/FV on a low-quality stock may just reflect that the market correctly prices weak fundamentals. But a low P/FV on a high-quality, wide-moat stock could represent a genuine opportunity.

This is exactly what the scatter plot is designed to show. The upper-left quadrant — high quality, below fair value — highlights stocks where quality and valuation align favorably. One limitation we're transparent about: any fair value estimate — including ours — depends on assumptions about future earnings, and those assumptions can be wrong. P/FV is a useful compass, not a GPS coordinate.