Web Sites Devoted to Stock Valuation

Recently, several free Web sites that specialize in DCF stock valuation models have become popular with investors. Each has its strengths and weaknesses and we describe them in this section.

ValuePro. This Web site (www.valuepro.net/) is near and dear to our hearts. We created the site in concert with the 1999 publication of Streetsmart Guide to Valuing a Stock, and we have administered the site since then. The site is devoted to the DCF method of stock valuation and has links that explain the approach in great detail. In 2000, we introduced a free online valuation service that has become popular with users. Type a stock symbol into the slot on the home Web page (Exhibit 7-2), click on the Get Baseline Valuation button, and the online valuation program accesses data sources for information relating to the company that you are valuing. The program calculates 20 variables, puts them into our valuation algorithm, and calculates the intrinsic stock value—our estimate of that day's value of the shares of the company.

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The Valuepro.net Web site displays a screen (Exhibit 7-3) that shows each valuation input. You can go to any or all of the input cells, put your own estimates into the cells, hit the Recalculate button, and the online valuation program calculates the new intrinsic stock value based on the inputs that you have provided. If you want to see the detailed pro forma statement associated with the valuation, click on the Cash Flows button, and a cash flow schedule based on the underlying inputs appears. You can then click the Value Another Stock button and begin the process anew. There is no limitation to the number of valuations you may perform, and the valuations are free.

The strengths of the Web site and the online valuation program are that it is easy to use and understand, is completely interactive, and is totally transparent. Just type the symbol into the slot and the program

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exhibit 7-3 Valuepro.net Online Valuation—Cisco does the rest. With the exception of the WACC input, which is a calculated number, you can change any input that you desire, and the new intrinsic value based on your inputs pops up on the computer screen. You can see each input and each assumption and follow the cash flows to verify that the intrinsic value is consistent with the in-

puts. Another nice feature is that there (currently) is no advertising or annoying banner or pop-up ads on the site.

The weakness of the Web site is that it is a barebones site. There is no symbol-lookup feature and no ancillary information aspects to the stocks that are being valued. The singular focus is on intrinsic stock value. It is also a very low budget operation. Data is updated weekly, and there is no effort to comb the data to find inputs that are highly implausible or wrong. The online valuation service does not yet work well for some highly levered stocks, such as REITs and financials, nor does it work well for portfolio companies, such as ICGE or Berkshire Hathaway. (Sorry Warren, we did it again.)

We show the inputs associated with the Valuepro.net online valuation of Cisco on January 9, 2003. Cisco stock price closed at $14.95 per share, and the online service estimated the intrinsic stock value of Cisco to be $4.55. Several of the inputs on the online valuation service are different from the inputs that we used on August 14, 2002 when we carefully examined Cisco's financial statements and valued Cisco using the ValuePro 2002 Software.

Quicken.com. The Quicken investor Web site (www.quicken.com/) provides many screens and services to an investor. One of the screens is an intrinsic value calculator. If you click on Quicken's Security Eval-uator link, and type CSCO into the slot, an intrinsic value screen will appear with a current price. On January 9, 2003 the stock price was $14.95, and the intrinsic value was $12.67, indicating that Cisco was overvalued. There is a small degree of interactivity—you can change the assumed earnings growth rate and the discounting rate (see Exhibit 7-4), but that's about it.

The strength of the Web site is due to all of the ancillary information that it provides. The intrinsic value program is easy to use and understand. The interactivity of the program is helpful but is limited and the algorithm that this site uses to come up with intrinsic value is opaque.

VectorVest. VectorVest (www.vectorvest.com/) is primarily a subscription service where you pay a monthly fee and have access to proprietary models and data for stock valuation. VectorVest has a free stock analysis service that is limited to three valuations per day per user. On January 9, 2003, we plugged CSCO into the Vector Vest free stock analysis slot and clicked. We received a dense three pages of

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printouts listing Cisco's price—$14.95, its value—$15.57, and several other metrics, which included relative value, relative safety, relative timing, VST (value, safety, timing), along with a recommendation— which in this case was buy.

The strength of the VectorVest free service is that it is easy to use and you receive an intrinsic value. The bad news is that you can only use it for three valuations per day, there is no interactivity, and the valuation process is a black box. You have no idea how the intrinsic value is calculated.

In the section that follows, we segment the information that you need to run a valuation into three categories: the easy-to-find company info, the company inputs requiring estimation, and the cost of capital inputs.

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