Guntavnook Katta - Fair Value PRO

Overview:

This script is designed to help long-term investors estimate the fair value of a stock using a combination of fundamental financial metrics and a proprietary multi-factor scoring model. It is especially useful for those who wish to assess whether a stock is undervalued or overvalued based on key fundamentals and recent price behavior.

This script is suitable for stocks, and is best applied on the Daily timeframe.



Purpose:

Many investors rely on Price-to-Earnings (PE) ratios, but not all businesses deserve the same PE due to differences in quality, growth visibility, brand strength, and financial health. This tool attempts to automate the estimation of a fair PE ratio for each company, based on key qualitative and quantitative metrics.

Core Logic:

The script takes the EPS (Earnings Per Share) for the recent financial year from TradingView’s built-in fundamental database and multiplies it by a calculated ideal PE ratio, derived from scoring logic applied to the following parameters:

Financial Parameters Considered:

ROCE (Return on Capital Employed): Indicates how efficiently a company is using its capital to generate profits. Higher ROCE generally reflects strong capital allocation.

ROE (Return on Equity): Shows how effectively the company uses shareholders’ equity. A high ROE may imply strong profitability.

Dividend Yield: Companies that share profits with shareholders via dividends are generally viewed favorably, especially if the yield is sustainable.

Promoter Holding: Higher promoter holding reflects confidence of the founders or promoters in the business. Companies with very low promoter holding might raise governance concerns.

Debt to Equity Ratio: Measures financial risk. Companies with low debt are generally safer, except for banks and NBFCs where high debt is normal.

Sales Growth (5 Years): Reflects business expansion. Consistent growth signals strong demand and operational scalability.

Profit Growth (5 Years): Indicates the company’s ability to grow net earnings over time. High profit growth with low sales growth can sometimes indicate improved margins.

Brand Value: Users can assign qualitative ratings to the company's brand strength, which significantly affects valuation.

Professional Management: If promoter holding is 0%, the company may be professionally or institutionally managed, which adds value in many sectors.

Special Edge: A user-defined optional scoring input for businesses with a strong moat, monopoly, or hard-to-replicate model.

Each of these parameters contributes positively or negatively to the Ideal PE score, which is then used to compute the Fair Value = EPS × Ideal PE.

Why This Scoring Approach?

In fast-moving and diverse market environments, the concept of fair value cannot be treated as a one-size-fits-all number. Traditional valuation models often apply a static PE ratio across stocks, overlooking the individual nuances that define each business. However, real-world investing calls for a more contextual approach—one that acknowledges the dynamic nature of companies, sectors, and economic cycles.

This script attempts to address that gap by offering a systematic way to estimate the fair price of a stock, based on both qualitative and quantitative parameters. The scoring logic is derived from concepts and patterns observed in popular books on fundamental investing and valuation. It encapsulates capital efficiency, ownership structure, growth performance, and brand power—all of which influence a company’s ability to command a premium valuation. The goal is not to suggest decisions but to enable custom, data-supported valuation assessments.

User Instructions:

Apply the script to a stock chart using Daily timeframe.

Open the indicator Settings Panel.


Choose either:

Auto-calculated PE: Let the script determine Ideal PE from scoring inputs.

Manual PE: If you're confident in the fair PE value, input it directly.

Hover over (i) icons in settings for explanation of each input.

Most inputs like ROE, ROCE, D/E ratio, etc., can be found from official filings, annual reports, or financial platforms.

Overbought & Oversold Signals:

This script also provides technical signals based on price deviation from fair value:

Uses RSI-based crossover logic in combination with user-defined price deviation thresholds.

Users can enable/disable signals independently.

Thresholds define how far above/below fair value the stock should move before a signal is triggered.



For example:

If the price moves above the fair value by a percentage equal to or greater than the Overbought threshold set by the user and the RSI crosses below 70, a red Overbought label appears.

If the price drops below the fair value by a percentage equal to or greater than the Oversold threshold set by the user and the RSI crosses above 30, a green Oversold label appears.

You can use the average deviation values displayed in the info table to determine suitable threshold levels based on historical price behavior.

Why RSI?

The Relative Strength Index (RSI) is a widely accepted momentum indicator used to assess whether a stock is overbought or oversold based on recent price performance. In this script, RSI serves as a reliable trigger mechanism when combined with fair value deviations. While the fair value estimation captures long-term fundamentals, RSI helps identify short-term extremes in price action. By using RSI crossovers, the script ensures signals are technically validated and not triggered solely by deviation, thus improving accuracy.

Visual Aids:



The green line shows the calculated Fair Value.

Candle colors:

Red: RSI ≥ 70

Green: RSI ≤ 30

Yellow: Neutral zone

An info table at the top-right displays:

Ideal PE

Current PE (based on FY EPS)

Calculated Fair Value

Avg Upper and Lower Price Deviation % from Fair Value

Note:

This tool is primarily optimized for evaluating Indian stocks, especially those listed on NSE/BSE, where metrics like promoter holding and ROCE are commonly used.

Disclaimer:

This script is intended for educational and research purposes only. It is not investment advice. The logic is based on publicly available data and scoring heuristics designed for learning and valuation awareness.