Price vs. Value: Running Burry's Stocks Through My Own Valuation Process

From here it's not about the stocks — it's about the process. Not what Burry bought, but how I'd verify it myself.

Price and value are different — and that's what separates investing from gambling

Most people treat the number on the ticker as 'the price.' But the price I care about is what it costs to buy the whole company — the market cap. PayPal's price, for example, is $38.7 billion. Not $42 a share; the total to buy every outstanding share is the real price.

Here's the decisive fact: PayPal trades at 7x free cash flow. Seven. Compare that to the Nasdaq 100 at roughly 45x. Adobe trades at 7.5x free cash flow. Revenue slopes up quarter after quarter, returns on capital are high, gross margins are strong — and yet the tag reads 'dying.' I don't argue with the tag; I calculate value instead of price and check whether the tag holds up.

Why free cash flow, not net income

Most investors look only at net income. I look at free cash flow, because that cash is what actually drives value.

PayPal generated $5.5 billion in free cash flow last year, and about $5.2 billion a year on average over five years. Adobe averaged $8 billion a year over five years and $10.3 billion last year. And it didn't buy revenue through acquisitions — Adobe spent just $2.83 billion on acquisitions over five years, roughly 6% of its free cash flow, while still growing revenue 16.9% a year over ten years and 11.7% over five. Look only at net income and you miss that picture entirely.

The math of buybacks

A big part of why these names appeal is buybacks — and the effect is clean when you write it out.

Say a company has 10 shares and earns $20; that's $2 a share. Buy back and retire 2 shares and you're down to 8, so the same $20 divides into $2.50 a share. Earnings are unchanged, but per-share value rises. PayPal has already bought back 21.5% of its shares. While the free-cash-flow multiple stays this low, the best thing management can do is grow the business and keep buying back stock with the leftover cash. And for the record: anyone telling you that issuing shares makes a company worth more is simply wrong.

The stock analyzer: five names on one yardstick

I run each name on a 10-year analysis. I input a revenue growth rate, a free-cash-flow margin, a P/E (or price-to-free-cash-flow multiple) to apply ten years out, and my desired return. That 9% return is an intrinsic-value, no-margin-of-safety figure — to actually buy an individual stock you'd demand more, but I held all five at 9% for a clean comparison.

The key move: I feed in assumptions that are usually more conservative than the actual results. PayPal's revenue growth, for instance, I set at 2/4/6% — below even analyst estimates. If it still screens cheap under those inputs, the mispricing is probably real.

Stock	Current price	Mid-case fair value	Mid-case annual return (DCF)
PayPal	~$42	$94-104	23.7%
Adobe	~$196	~$600	~26%
Veeva Systems	$155	~$230	~14.5%
Alibaba	$107	~$225	~20%
Zoetis	$77	$100-105	~12%

Veeva has one intriguing quirk — its market cap ($25.7B) is larger than its enterprise value ($20B). That means it's a net-cash business: far more cash on hand than debt, which makes bankruptcy hard. Alibaba is the opposite, carrying roughly $65 billion in net debt with weak returns on capital — yet even on an extremely low 5% revenue-growth assumption it returns 20% intrinsically. For the number-one company in China, 5% growth is a stingy input.

Risks and the counterargument

To avoid any misread: none of these numbers is a no-brainer.

What I keep stressing is the portfolio, not the single bet. If I can assemble 20-30 large companies with metrics like these below fair value, I'll do very well overall even without being right on any one name. The game isn't going all-in to be right on one stock; it's finding many mispriced good companies. And the assumptions have to be yours — your desired return, your exit multiple, your growth rate may all differ from mine. The tool doesn't hand you an answer; it tells you what price is worth paying based on the assumptions you put in.

FAQ

Q: Why is the free-cash-flow multiple more important than the P/E? A: Net income is heavily shaped by depreciation and non-cash items. Free cash flow is the cash the business actually keeps, and it's what funds buybacks, dividends, and reinvestment. For companies like PayPal, Adobe, and Veeva — where cash flow exceeds net income — looking only at the P/E creates an illusion that they're more expensive than they are.

Q: What does a '9% no-margin-of-safety return' mean? A: 9% is roughly what you'd expect from a long-term ETF. An individual stock carries more risk, so when you actually buy you'd demand a return above 9% to build in a margin of safety. The table here uses 9% purely as an intrinsic-value baseline for comparing names.

Q: What does it mean when enterprise value is below market cap? A: It's a net-cash business — more cash on hand than debt. Veeva is the example, and companies like that are hard to bankrupt.