What is sticker price?
- Sticker price is the market price you pay for a stock, set by the last trade.
- Intrinsic value is what the company is actually worth, and the gap between the two is your edge.
- Buy only when sticker price sits at least 15 percent below intrinsic value.
- Estimate intrinsic value by projecting EPS, applying a future P/E, and discounting back at your required rate.
- Town's method: intrinsic value is future earnings discounted back to today.
What is sticker price?
Sticker price is the market price of a stock. It is what you pay to own a share today. The market sets it. Your job is deciding if that price is cheap, fair, or far too high.
Every stock has one. Every day the market prints a new one. You see it on your broker's screen. But that number is not what the company is worth. It is only what the last buyer paid.
Sticker price vs. intrinsic value
The real question is intrinsic value. That is what the company is actually worth. Sticker price is what you pay. Intrinsic value is what you get. The gap between them decides if you win or lose.
A famous rule: buy when the sticker price is at least 15 percent below intrinsic value. That cushion protects you when you are wrong. It also gives you room to profit when the market wakes up.
Most people do the opposite. They chase stocks with big momentum. They pay a premium for hype. Then the hype fades and the sticker price crashes down to reality, leaving late buyers holding overpriced shares.
How to find intrinsic value
You estimate future earnings. Then you discount them back to today. The discount rate is your required return. A higher rate means a lower value. Town calls this the only true measure of worth.
Start with EPS, or earnings per share. That is the company's profit divided by its shares. Project it forward. Then apply a future P/E to get a target price. Discount that back at your rate.
Example: a company earns $2 per share. It grows 10 percent a year. In five years, EPS is about $3.22. A future P/E of 15 gives a target near $48. Discount back at 10 percent and you get about $30. Buy if the sticker price sits below $30.
The part most people skip: waiting
The hard part is not the math. It is the waiting. You compute a value, set your number, and then the market must come to you. That can take months or years. You do nothing until it does.
Some days the sticker price never falls to your number. That is fine. You simply do not buy. Cash sitting in your account is not failure. It is ammunition waiting for the day the market meets you.
A price is an offer, not a command. The market prints a number and hopes you bite. You get to refuse. Every day it offers, and every day you can say no until the offer actually makes sense.
Emotion is the real enemy. Hype makes you overpay for a stock with a future already priced in. Fear makes you sell below value. The sticker price does not care. It only reflects what the crowd paid last.