It is easy to quote Warren Buffett’s “Price is what you pay, value is what you get”.
However, many investors still struggle with a simple but crucial question: is this stock cheap, fairly valued, or expensive?
Valuation often feels too complicated, with formulas that seem reserved for professionals.
How can everyday investors cut through all the noise?
Let us show you, in three practical steps, how to calculate the fair value of any Singapore stock.
Why Fair Value Matters
Everyone can spot a great business, but buying great businesses at the wrong price can still lead to poor returns.
Fair value ensures that you do not overpay.
It allows you to identify opportunities and make smart decisions when it comes to investing in a company.
It is not about getting an exact price, but making reasonable estimates to protect your capital.
Step One: Estimate Future Earnings or Cash Flow
Using the company’s current earnings as a baseline, we can estimate how the business might grow over time by looking at historical growth rates.
The industry outlook and company-specific drivers, such as new products or expansion plans, also help gauge future demand.
However, be conservative in your estimates, as overestimating growth is a common but costly mistake.
Instead of a best-case scenario, allocate a margin of safety by using modest growth percentages to reduce the risk of overpaying for a stock.
Step Two: Apply a Reasonable Valuation Multiple
We can use simple metrics such as price-to-earnings (P/E) ratio or price-to-book (P/B) ratio to get reasonable valuations.
P/E measures growth potential, while P/B assesses value relative to net assets.
Depending on the industry, a P/B ratio of 1x to 3x and a P/E ratio of 15x to 25x might be considered fair value.
A ratio that is too low could signify an undervalued stock, while a very high ratio suggests the market might be too optimistic.
Investors also need to look into the company’s fundamentals to make sense of these ratios.
Businesses with higher growth and more stable earnings generally deserve higher valuations.
Conversely, cyclical or uncertain businesses should trade at more modest levels.
Step Three: Build in a Margin of Safety
Last but not least, bake in a margin of safety since fair value is an estimate based on assumptions about future growth and earnings.
These assumptions might change over time, perhaps due to external forces beyond the company’s control, and buying a stock right at its estimated fair value can then be risky.
Having a 10% to 20% discount helps cushion the downside risk if the company underperforms or if market sentiment weakens.
For example, if the fair value of a stock is S$1.00, you might only consider buying if it trades between S$0.80 and S$0.90.
This buffer against uncertainty makes a significant difference in long-term investment outcomes.
Fair Value Calculation Example
Let’s use Sheng Siong Group (SGX: OV8) as an example.
As an essential business, Sheng Siong is a stable supermarket brand where growth is steady but not explosive.
For FY2025, the Group reported earnings-per-share (EPS) of S$0.0998.
Sheng Siong announced a year-on-year (YoY) revenue growth of 9.9% in FY2025, with a net profit of S$149.2 million, an 8.5% increase YoY.
To keep estimates conservative, we will project five years forward with an annual growth rate of 5%.
Using the formula for compound growth, the future EPS is calculated as 0.0998 x (1.05)⁵, which equals approximately S$0.1274.
Consumer staples often have stable P/E ratios.
Instead of using a peak multiple, we will use a reasonable 25x P/E to stay safe.
Multiplying our future EPS of S$0.1274 by 25 gives us a fair value of S$3.19.
Now, we apply our margin of safety.
- 10% discount: S$3.19 × 0.9 = S$2.87
- 20% discount: S$3.19 × 0.8 = S$2.55
Sheng Siong’s current share price of S$3.11 (as of 10 April 2026) is slightly lower than its estimated fair value, but it can be risky as it is above the margin of safety.
Fair value is not static. If you have newer information, you should factor it into your calculations and view the stock with its new numbers.
Common Mistakes Investors Make
Overestimating growth rates is expensive.
There is a tendency to get carried away when the company has performed well recently.
Inaccurate forecasts based on unrealistic growth will lead you to overpay.
The same applies to using excessively generous P/E ratios.
To get a better perspective, always assess the ratios against their historical averages and industry competitors.
Another common error is treating fair value as an exact number instead of a range.
Small changes in growth rates or margins can lead to very different outcomes.
This is why smart investors see fair value as a guide rather than a strict rule.
Finally, beware of overtrading based on small price fluctuations.
Constant buying and selling results in unnecessary costs and pressure.
Let your time in the market do the heavy lifting instead.
Get Smart: Disciplined Assumptions And Strong Business Fundamentals Go A Long Way
Before buying any stock, understand its underlying business to help you make confident and rational investment decisions.
It does not have to be complex and confusing.
By focusing on earnings, valuation multiples, and a margin of safety, you are well on your way to building a robust portfolio of fairly valued stocks.
If you’re nervous, confused, or worried about buying your first stock, then our latest beginner’s guide to investing can help. It’s easy to read yet packed with valuable insights. Download it for free today, and buy your first stock in the next few hours. Click here to get started.
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Disclosure: Wenting A. does not own any of the stocks mentioned.
