We believe that stock prices are the clearest and most reliable signals of the market's expectations about management's ability to perform in the future.

Investment managers typically determine the value of a stock by using the discounted free cash-flow (DCF) valuation method. This approach is based on a series of assumptions, often no more than educated guesses about the growth of the company's business performance drivers.

For example, investment managers might work feverishly to forecast the company's performance drivers, such as the number of iPods Apple will sell, or the number of auctions eBay has to list, or the number of packages FedEx will ship. This approach produces a highly subjective valuation of a company's stock.

Transparent Value Approach

At Transparent Value, we reverse the traditional DCF method. Instead, we start with the underlying value of the stock as determined by the market price.

We then couple this market price with the latest financial information to work backwards to determine the required business performance; that is, we identify how much revenue the company must generate to support the price of the stock.

Not only do we calculate the required revenue, we work all the way back through the company's business model to the most granular level to determine a company's required business performance components; for example, how many iPods Apple must sell, auctions eBay must list, and packages FedEx must ship to support their stock price. We have deep insights into a company's true value.