Earnings Power Value
One question, asked with almost aggressive conservatism: what is this business worth if it never grows another dollar?Value only the earnings it already produces, assume zero growth forever, and see what falls out. The gap between that number and the price isn't noise — it's the exact amount you're being asked to pay for growth.
01Where it comes from
Bruce Greenwald taught value investing at Columbia — the same chair Benjamin Graham once held — and in Value Investing: From Graham to Buffett and Beyond(2001) he set out to strip a valuation of its most abused ingredient: growth. Growth assumptions are where DCFs go to lie, so Greenwald's move was radical in its restraint — assume none at all.
Earnings Power Value is the result: the value of a company's current, sustainable earnings, capitalized in perpetuity with no growth baked in. It's the most conservative honest estimate you can make — a floor built only from what the business already does. Anything the market pays above it is a wager on the future, made explicit.
02The formula
Take earnings the business can sustain — normalized, so one boom or bust year doesn't distort it — and divide by your required return. That's it: the present value of a flat, perpetual earnings stream. No growth term anywhere.
The genius isn't the arithmetic — it's the comparison. Line EPV up against the price and you've split the price into two honest pieces: what you're paying for earnings that already exist, and what you're paying for growth that doesn't yet.
Price minus Earnings Power Value equals the price of hope. EPV just makes you look at it.
03Splitting two prices in half
Version A, ~9% required return, from each company's latest earnings:
The earnings it already produces are worth about $129 a share — and it trades at $109. You are paying nothing for growth, and in fact getting the existing earnings power at a discount. That's the Greenwald sweet spot: a business where the floor sits above the price.
Its current earnings justify about $686 — barely a fifth of the $3,041 price. The other ~77% is pure growth expectation.That's not a verdict, it's a clarified bet: for two decades Constellation has delivered exactly that growth. EPV doesn't tell you it's overpriced — it tells you precisely how much of the price depends on the future, so you know what you're actually wagering on.
04When Earnings Power Value lies
Its strength — ignoring growth — is also the trap, and it shares the cyclical blind spot of every earnings-based method.
Three ways it misleads
- A low EPV vs price isn't “sell.” For a genuine compounder like Constellation, most of the value legitimately isgrowth — condemn it on EPV alone and you'd have missed one of the great businesses. EPV frames the bet; it doesn't settle it.
- It assumes this year is normal. Capitalize peak-cycle earnings and a cyclical looks cheap; capitalize trough earnings and it looks dear. This is why Version B averages seven years — normalize first, or the floor is fiction.
- It's only as good as the discount rate.Dividing by 8% instead of 9% lifts EPV by more than 10%. And for banks and insurers, where “cost of capital” and normalized earnings are both murky, treat the output as a rough sketch, not a measurement.
The real power of EPV shows when you set it beside the other lenses. A stock cheap on the Graham Number andtrading below its EPV — like Linamar — is cheap two independent ways. A stock far above its EPV is a growth story you must underwrite with eyes open. That's the whole philosophy of this app: not one number, but the conversation between several.
Split any price into earnings and hope
The research page shows both EPV versions beside the Graham methods and the margin of safety — so you can see, for any stock, how much of the price is earnings you can touch and how much is growth you have to believe.