The expected return measures your total annualized return over 5 years, combining two sources of potential gains: the valuation gap closing (margin of safety) and the business continuing to grow. This gives you a complete picture of what you could earn as an investor.

"The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset."

- Warren Buffett

The Two-Step Calculation

Expected return is calculated in two steps:

Step 1: Project intrinsic value forward 5 years Future IV = Current IV × (1 + growth rate) ^ 5 Step 2: Calculate annualized return to that future value Expected Return = ((Future IV / Current Price) ^ (1/5) - 1) × 100

This approach recognizes that as the business grows, its fair value grows too. Your return comes from both the current undervaluation and participating in that growth.

SFES's Calculation

Step 1: Future Intrinsic Value $N/A × (1 + N/A)^5 = $N/A Step 2: Annualized Return ($N/A / $