How Understock works
Three methods. One honest answer. Here is exactly how we calculate what a stock is worth.
The core idea
Price and value are different things.
Every stock has a price — the number you see on NSE or BSE. That price changes every second based on what buyers and sellers agree to pay right now.
But every business also has a value — what it is actually worth based on the cash it generates, the assets it owns, and how similar businesses trade. That value changes slowly, with earnings and growth. It does not change every second.
The gap between price and value is where opportunity lives.
When price is significantly below value — the stock may be undervalued. When price is significantly above value — the stock may be overvalued. Understock shows you this gap for every company in our database.
Method 1
Discounted Cash Flow (DCF)
What are this company's future earnings worth today?
A Discounted Cash Flow model answers one question: if this company keeps generating cash at roughly its current rate and grows steadily — what is all of that future cash worth in today's money?
We take the company's free cash flow (the money left after running the business and investing in growth), project it forward 5 years, add a terminal value for everything beyond that, and discount it back to today using a required rate of return.
The result is a DCF intrinsic value — a single number representing the present value of the business's future cash flows per share.
What affects the DCF value
- ↑ Higher free cash flow → higher value
- ↑ Faster growth → higher value
- ↓ Higher discount rate (more risk) → lower value
When we skip DCF
DCF does not work well for banks, insurance companies, and NBFCs — their business model makes free cash flow meaningless. For cyclical companies (steel, cement, auto) we reduce DCF weight and increase peer comparison weight.
Method 2
Peer Comparison
What would this stock be worth if it traded like its peers?
Every stock in a sector tends to trade at a similar multiple of its earnings, assets, and cash flows. Peer comparison asks: if this company traded at the same valuation as its closest competitors — what price would that be?
We use three measures:
P/E ratio
How much investors pay for each rupee of profit. If the sector median is 25× and this company earns ₹50 per share, the P/E fair value is ₹1,250.
Weight: highest for IT companies
P/B ratio
How much investors pay for each rupee of book value. More important for asset-heavy businesses like banks and manufacturers.
Weight: highest for banks
EV/EBITDA
Compares enterprise value to operating earnings. Useful because it accounts for debt levels across different companies.
Weight: highest for capital-intensive businesses
The result is a peer fair value — what the market would pay for this stock if it traded in line with its sector.
The result
The blended intrinsic value
One honest number combining both methods.
Neither DCF nor peer comparison is perfect on its own. DCF can undervalue high-growth companies whose future earnings are not yet visible in today's cash flows. Peer comparison can overvalue entire sectors when they are broadly expensive.
Using both together — and averaging them — reduces the limitations of each. The blended intrinsic value you see on every stock page is this average. We show you the DCF and peer values separately so you can see exactly how we arrived at the final number.
Weights by company type
Company type
DCF weight
Peer weight
Stable (IT, FMCG, Pharma)
50%
50%
Moderately cyclical (Auto, Cement)
35%
65%
Highly cyclical (Steel, Mining)
20%
80%
Financial (Banks, NBFCs)
0%
100% (P/B)
Beyond valuation
Business quality
A cheap stock is only a good investment if the underlying business is healthy. We score every company on two frameworks used by professional investors:
Piotroski F-Score
0 – 9Nine binary checks across profitability, leverage, and operating efficiency. Calculated from audited annual reports — not estimates or forecasts.
Altman Z-Score
Distress predictorPredicts financial distress. Calculated from the same audited balance sheet as the Piotroski score — no estimates.
The conviction journal
The feature that protects you from yourself
The single biggest mistake retail investors make is not buying the wrong stock. It is selling the right stock at the wrong time — panic-selling when the price drops 20%, only to watch it recover and go higher.
The Conviction Journal is our answer to this.
Before you add any stock to your watchlist, we ask you five questions:
- 1.What does this company do?
- 2.Why will it be worth more in 3–5 years?
- 3.If the price dropped 30%, what would you do?
- 4.What percentage of your portfolio would you allocate?
- 5.Under what conditions would you sell?
Writing down your answers takes 5 minutes. But when the market crashes and fear takes over — your own words from a calmer moment are the best protection against a decision you will regret.
Start with any stock.
Search for any NSE or BSE listed company. See its intrinsic value, quality scores, and peer comparison. Free to use. No account required to start.