How this site calculates the margin of safety
Last updated October 20, 2026. Thresholds below are the ones the code uses today.
The margin of safety is the gap between a stock's price and its intrinsic value, as a share of intrinsic value: (intrinsic value − price) ÷ intrinsic value. Intrinsic value comes from a two-stage discounted cash flow (DCF) model on the stock's free cash flow per share, with one neutral set of assumptions for every stock. A positive margin means the price is below the model's value; it is a starting point for research, not a buy signal.
What is the formula?
Margin of safety = (intrinsic value − price) ÷ intrinsic value × 100. Dividing by intrinsic value, not price, is Benjamin Graham's framing: how much of a discount to real value you are paying. This is the same formula the stock card, the home page and the Margin of Safety explorer use.
Example from October 17, 2026: Adobe traded at $245.20 against a model value of $452.78 per share, a margin of safety of (452.78 − 245.20) ÷ 452.78 = +45.8%. A margin of 25% or more is what this site calls a Graham margin. See margin of safety in the glossary.
How is intrinsic value computed?
The model starts from free cash flow per share for the trailing twelve months (Finnhub's price-to-free-cash-flow data). It projects that figure forward for 10 years, discounts each year at 10%, and adds a terminal value:
- Cash flow grows at a starting rate in year 1 and the growth rate fades in a straight line to the terminal rate by year 10.
- Each year's cash flow is divided by (1 + 10%) raised to that year.
- Terminal value = year-10 cash flow × (1 + terminal rate) ÷ (discount rate − terminal rate), also discounted back 10 years.
- Intrinsic value per share = the sum of the discounted cash flows plus the discounted terminal value.
| Assumption | Baseline | Why |
|---|---|---|
| Starting growth | 8% a year, fading | A neutral, moderate rate; you can change it in the calculator |
| Terminal growth | 2.5% | Roughly long-run inflation plus a little real growth |
| Discount rate | 10% | A common hurdle for equities; the calculator shows how much it moves the answer |
| Years projected | 10 | Long enough for the fade, short enough to avoid false precision |
Which stocks get no margin of safety?
Banks, insurers, financial services companies, real-estate companies and utilities. Their operating cash flow reflects deposits, premiums, property depreciation or regulated reinvestment, not what is left for owners, so a free-cash-flow DCF does not fit and the card shows no margin of safety. A company with zero or negative free cash flow also gets none. The home page's picks apply the same exclusion.
What are the limits?
- The result is only as good as the cash flow it starts from: one unusual year skews it.
- One set of assumptions for every stock cannot fit every business; a fast grower will look worse and a mature one better than a tailored model.
- A higher discount rate lowers every value. Change it in the calculator to see.
The inverse view, what growth today's price assumes, is explained in what growth does a share price imply.
Where does the data come from?
Free cash flow per share and prices from Finnhub; the DCF code is open to inspection in the site's JavaScript and is run unchanged by the stock cards, the calculator and the weekly build. Every figure on a stock page links to its source when clicked.
Frequently asked questions
Is a positive margin of safety a buy signal?
No. It says the price is below this model's value under neutral assumptions. Check earnings quality, balance-sheet risk and whether the cash flow is likely to last before drawing a conclusion.
Why does the margin change from week to week?
Both inputs move: the price changes daily, and free cash flow per share updates when a company files new results. The trend line on each stock card shows the weekly readings.
Why do some stocks show n/a?
Banks, insurers, real-estate companies and utilities have no free-cash-flow DCF here, and companies with zero or negative free cash flow cannot be valued this way.