Fair Value = Future Earnings at Growth Stage + Terminal Value
= E(0) x(1-xn)/(1-x) + E(0)xn y/(1-y)
where x=(1+g)/(1+d), and y=(1+t)/(1+d)
E(0) – current earnings per share; g – annual growth rate of revenues (usually 5 to 10% but based on the post ten years of revenue growth); d – discount rate (interest rate in excess of return on investment for the past ten years – usually 8 to 12%); t – growth rate at terminal state (a conservative estimate of revenue growth during the past ten years); n – number of years at the growth rate of g (estimate of the longevity of the firm, usually equal to the longest stream of revenues during the past ten years).
Projecting holdings of IBM for ten years, the price of shares could be in the $400 to $500 range plus dividends, for a potential profit of >$1 billion.