Process & Philosophy
Glossary
RBP®
The revenue growth necessary to support the current stock price. Required Business Performance® is used as a benchmark against which to measure management’s ability to perform in the future. It is calculated using a reverse discounted cash flow valuation model that uses the current stock price as the primary input.
RBP® Probability
The likelihood that management will deliver the Required Business Performance® to support the stock price. It is calculated by fitting the company’s historical revenue growth to a distribution, then finding the company’s Required Business Performance within this historical distribution.
In the hypothetical example below, the company’s RBP® Probability, represented by green, is 35% while its Behavioral Risk Indicator, represented by red, is 65%. RBP® Probability
Behavioral Risk Indicator
The likelihood that investors’ systematic behavioral biases have caused misalignment between the stock price and management’s ability to deliver. The Behavioral Risk Indicator is designed to capture the impact that human psychology has on the subjective valuation process used by investors. It is defined as one minus the RBP® Probability.
In the hypothetical example below, the company’s RBP® Probability, represented by green, is 35% while its Behavioral Risk Indicator, represented by red, is 65%. Behavioral Risk Indicator
RBP® Methodology
A system of fundamental stock analysis that uses a reverse discounted cash flow valuation model to determine what the stock’s current price implies in terms of future free cash flow and revenue (Required Business Performance® ) as well as the calculation of the likelihood that management can deliver the Required Business Performance®, known as RBP® Probability.
RBP® Platform
The Transparent Value decision support tool consisting of an interactive database containing the proprietary data produced by Transparent Value. Included are the Required Business Performance® (RBP® ) values, RBP® Probabilities and Behavioral Risk Indicators for more than 2,000 global stocks, the Transparent Value mutual fund rating system providing coverage of more than 3,000 funds, and also broad market indicators.
RBP® Snapshot
Provides updated company-specific RBP® information based on the company's most recent quarterly financial data. The RBP® Snapshot consists of the RBP® probability and RBP® values for a particular company.

What makes the RBP® Methodology unique?


Most analysts and investment professionals seek to determine whether to buy or sell a stock by making a series of assumptions about future performance that often amount to little more than educated guesses about the unknowable future. Because the future is unknown, this process inevitably introduces a tremendous amount of uncertainty, and slight changes to these assumptions can have a large impact on the final investment decision criterion. We believe that this subjectivity often allows investors’ systematic behavioral biases to cause stock prices to become misaligned with management’s ability to deliver.

This makes the RBP® Methodology unique in two ways. First, the RBP® Methodology ignores the uncertain variables and chooses to focus instead on what is known – the company’s stock price and historical financial statements. Each Transparent Value analyst starts with a company’s current stock price and works backward to determine the Required Business Performance® to support the stock price. We believe this helps us to identify situations in which behavioral biases have caused misalignment between stock prices and management’s ability to deliver.

Second, the fact-driven, forecast-free nature of the RBP® Methodology helps to minimize the amount of subjectivity contained in the investment analysis process. We believe this approach prevents behavioral biases from influencing our analysis.