What Does Discount / Premium to Fair Value Mean, and Why Is Negative Cheap?

Discount / premium is the percentage gap between the current price and the model's fair value: negative means the price sits below fair value, positive means above. It measures the distance between a price and an estimate, not whether the stock is objectively cheap or expensive.

How it is calculated

In words: current price minus fair value, divided by fair value, times 100. With a fair value of 100 and a price of 80 the result is −20%, read as "20% below the model's estimate"; a price of 130 gives +30%.

The sign runs opposite to the classic "margin of safety". Value investors usually record "below estimate" as a positive margin, while Stock Compass uses "negative = below the estimate" throughout, because the figure sits next to the model estimate on the card and a minus sign reads instantly as "price is under the estimate". The fair value itself comes from the internal model (earnings, cash flow, peer valuation) — see fair value.

Rules of thumb

Reading	What it usually means
Below about −30%	Far under the estimate; ask what the model may be missing first
−30% to −10%	Clearly below the estimate
−10% to +10%	Within normal estimation error
+10% to +30%	The market pays more than the model would
Above +30%	High expectations are already priced in

These bands are generic reading conventions, not laws, and not labels the app puts on a stock: the card shows only the number. Cyclicals look cheapest against the estimate at the top of the cycle when earnings peak; high-growth companies can sit well above it for years.

What it does not tell you

• Whether the model is right. It inherits every assumption behind the fair value; at low confidence the error can be larger than the gap itself.
• When the gap will close. A price can sit below the estimate for a long time, or keep getting cheaper.
• How peers are priced. If a whole sector trades at a discount, −20% on one name is not necessarily unusual.

In Stock Compass

On the stock card's valuation block it follows "Model est." as a signed percentage, recomputed from today's price, with no zone label. When model confidence is low the row turns grey and italic with a "Low conf" badge; cyclical, ROE-anomaly and model-diverges warnings appear as small tags.

The valuation section of the card's data summary states it as a fact: "Internal model estimate X, as of <date>; the price is 20% below the estimate", with the model's own confidence grade. The date is that of the last successful fundamentals fetch; if the latest fetch failed, the missing-data list says which date the figures are from. The analyst target is listed separately with its analyst count. When the two differ by more than 30% the summary notes it, without saying which one to trust.

In strategy rules the indicator id is margin_of_safety_pct; an example condition is margin_of_safety_pct < -10 (at least 10% below fair value). Writing "> 20" would select stocks 20% overvalued, not a 20% margin of safety. A cheap valuation paired with a falling price is the classic trap — see stop chasing the market.