Working With Ranges, Not Targets
A precise price target implies certainty that does not exist. A range built from stated assumptions is both more honest and easier to act on.
Why this matters for beginners
Single-number targets encourage false confidence and make it hard to notice when your assumptions have been proved wrong.
Main explanation
Build three cases: a conservative one, a base case and an optimistic one, each with explicit assumptions about growth and margins.
The resulting range shows how sensitive value is to your assumptions. A very wide range means the outcome depends heavily on things you cannot predict.
Decisions become clearer. Below the conservative case, most outcomes are acceptable. Above the optimistic case, only the best case works.
Ranges also make review possible. When results arrive, you can see which case is tracking and update deliberately rather than emotionally.
Example using a real company
A range of 60 to 120 with a base case of 85 makes a price of 55 attractive and a price of 130 unattractive without needing precision.
- →Conservative 60, base 85, optimistic 120.
- →A price of 55 sits below every case; a price of 130 sits above all of them.
Common beginner mistakes
- ✕Treating a single price target as a fact.
- ✕Building only an optimistic case.
- ✕Never revisiting the assumptions after results are published.
Key terms
- Scenario
- One set of assumptions producing one value estimate.
- Sensitivity
- How much value changes when an assumption changes.
- Base case
- The most likely scenario in your judgement.
Key takeaways
- 01Use three explicit scenarios rather than one target.
- 02A wide range signals dependence on unpredictable factors.
- 03Ranges make later review straightforward.
Check yourself
- 01A value range communicates uncertainty better than a single target.
- 02A precise price target means the valuation is accurate.
- 03Writing scenarios down makes later review easier.
Try the concept on a real company
Use the bull and bear cases in the Analyzer as the outer edges of a range, then write your own base case between them.
Educational examples only. Not buy or sell recommendations.