Payback Price
The price at which you buy a stock with a 50% margin of safety built in. This is the core of PaybackPrice.
What is Payback Price?
Payback Price is the maximum price you should pay for a stock to achieve a 50% margin of safety. It's calculated by taking the sticker price (estimated intrinsic value) and cutting it in half.
The 50% margin of safety protects you from errors in your analysis, unexpected business problems, or market downturns. If your sticker price estimate is wrong, you still have room to profit. If you're right, you make extraordinary returns.
The formula
Payback Price = Sticker Price × 0.5
Why it matters
Valuation is inherently uncertain. You're projecting 10 years into the future, estimating growth rates, and making assumptions about the economy, competition, and management. Even the best analysts get it wrong sometimes.
The 50% margin of safety is your insurance policy. It acknowledges that your sticker price estimate could be too high by up to 50% — and you'd still be buying at or below fair value.
Without margin of safety
You buy at sticker price. If your estimate is wrong, you lose money. One bad assumption can wipe out your entire investment thesis.
With 50% margin of safety
You buy at half sticker price. Even if the business is worth 50% less than you thought, you're still buying at fair value. Your downside is protected.
Example
Let's say you've analyzed a company and calculated:
- Sticker Price: $100
- Current Market Price: $55
Payback Price = $100 × 0.5 = $50 Current Price ($55) > Payback Price ($50) Verdict: DO NOT BUY — the stock is trading above your maximum buy price.
Even though the stock is below sticker price ($100), it's not below your payback price ($50). You wait for a better entry point — or find another opportunity.
The PaybackPrice verdict
PaybackPrice gives you a clear verdict for every stock:
✓ BUY
Current price is at or below payback price. The stock offers a 50%+ margin of safety.
✗ DO NOT BUY
Current price is above payback price. Wait for a better entry point.
Note: The verdict is a starting point, not financial advice. Always do your own research and consider your personal financial situation before investing.
How PaybackPrice uses it
PaybackPrice automatically calculates the payback price for any US stock and compares it to the current market price. You get an instant verdict — BUY or DO NOT BUY — along with all the underlying numbers so you can verify the analysis yourself.
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