Appraisal Per Share $ is calculated by adding up a firm’s book value and the estimated amount and timing of future profits, adjusting the sum downward to account for our estimate of the riskiness of the business, to arrive at a Business Appraisal figure. This number is then divided by the number of shares outstanding to get Appraisal Per Share $, which can be compared directly with the stock's actual price per share.
Benefit
Appraisal Per Share can be compared with the stock price to see whether the stock is potentially undervalued or overvalued.
Origin
This figure is calculated in-house on a monthly basis using Morningstar’s proprietary model.
For the Pros
A stock’s fair value is equal to all the cash the underlying business will generate over the course of its life, adjusted downward to account for its riskiness. It’s like the value of a bond, which is a function of the principal and the amount and timing of interest payments. The riskiness of the bond—whether it’s a no-risk Treasury or high-risk junk bond or something in between—also plays a big role in determining its value. For a stock the theory is the same, but the practice is trickier because we have to estimate many of the parameters.