We view the intrinsic value of a firm as a range, not a single point estimate. So instead of us saying that a company is worth exactly $55 per share, for example, instead we'd say it is worth between $50 (low end) and $60 per share (high end) -- think of this range as our margin of safety. We use a margin of safety due to the inherent uncertainty of predicting with absolute precision a firm's future free cash flow stream -- a firm's future free cash flows determine our estimate of the company's intrinsic value, and the future is not known yet. As a result, the 'percentage undervalued/overvalued' (as shown on our 16-page reports) is calculated by comparing the firm's current price with the low end and high end of its fair value range (and not the single fair value point estimate), respectively. If a firm's share price falls within the fair value range, we'd consider it fairly valued. If a firm's price falls below the low end of our fair value range, we'd view it as cheap. If the price is above our fair value range, we think the company's shares are expensive.
