Beer Score Methodology
JustTheBeer uses a transparent, rules-based approach to estimate the fair value (intrinsic value) of every stock. This page explains exactly how Beer Scores are calculated — what data we use, what assumptions we make, and how to interpret the results.
Data Sources
All financial data comes directly from SEC EDGAR filings — specifically 10-K (annual) and 10-Q (quarterly) reports. We extract revenue, net income, free cash flow, total debt, cash and equivalents, and shares outstanding from the most recent filing available for each company.
Market prices are indicative reference prices sourced from public financial data providers. Prices update daily after market close. These are not official exchange feeds.
DCF Model (Discounted Cash Flow)
The core of Beer Score is a standard DCF valuation model. For each stock, we project future free cash flows over a 5-year period, then calculate a terminal value using a perpetuity growth model. All future cash flows are discounted back to present value using the company's estimated Weighted Average Cost of Capital (WACC).
Key Assumptions
| Parameter | How It's Set |
|---|---|
| Revenue Growth (5yr) | Sector-adjusted based on historical growth rates and analyst consensus ranges |
| WACC | Sector default (7.5% – 14%) adjusted for company size and leverage |
| Terminal Growth Rate | 2.0% – 3.0% depending on sector (never exceeds long-term GDP growth) |
| Free Cash Flow Margins | Based on trailing 12-month actuals from SEC filings |
Sector Default WACC Ranges
| Sector | Default WACC | Terminal Growth |
|---|---|---|
| Technology | 10.0% – 11.0% | 3.0% |
| Healthcare | 9.0% – 10.0% | 3.0% |
| Financials | 9.0% | 2.5% |
| Consumer | 8.5% – 10.0% | 2.5% – 3.0% |
| Industrials | 9.0% – 9.5% | 2.5% |
| Energy | 9.5% – 10.0% | 2.0% |
| Utilities | 7.5% | 2.0% |
| Real Estate | 7.5% – 8.0% | 2.0% – 2.5% |
Beer Score Formula
Once the DCF model produces an estimated intrinsic value (fair value per share), the Beer Score is calculated as:
Beer Score = (Intrinsic Value / Market Price) × 100
The score is capped at 100. A Beer Score of 100 means the stock's estimated fair value meets or exceeds its current market price — the glass is "full of beer." A score of 50 means only half the price is supported by fundamentals — the rest is "foam" (speculation premium).
Score Zones
| Zone | Score Range | Interpretation |
|---|---|---|
| Pure Beer | 80 – 100 | Price well-supported by fundamentals. Low speculation premium. |
| Good Pour | 60 – 79 | Solid fundamental backing with moderate growth premium. |
| Getting Foamy | 40 – 59 | Significant speculation in price. Less than 60% supported by fundamentals. |
| All Foam | 0 – 39 | Price driven primarily by narrative, momentum, or future expectations. |
Important Limitations
Beer Score is a model-based educational indicator, not investment advice. Key limitations include:
Sensitivity to assumptions: Small changes in WACC or growth rate significantly alter the output. A 1% change in WACC can shift the intrinsic value estimate by 15-25%.
Backward-looking data: SEC filings reflect past performance. The model does not account for management guidance, pending acquisitions, regulatory changes, or other forward-looking factors.
Not a price target: A low Beer Score does not mean "sell" and a high score does not mean "buy." The score measures the gap between current price and a model estimate of fundamental value — one signal among many.
Update frequency: Scores update daily after market close. New earnings data from SEC filings is incorporated within 24 hours of publication.
How to Use Beer Score
Beer Score is best used as a screening tool — a quick way to gauge how much of a stock's price is backed by current fundamentals versus speculation. Use it alongside your own research, not as a replacement for it.
For the full ranking of all stocks, visit the Beer Score Heatmap. For daily highlights, check Today's Foam Report.