Ask the Fool: How can I determine what a company’s fair value is? – D.B., Honolulu

A: A stock’s true value is not easy to determine. Smart analysts often disagree when they do their complex calculations. They frequently use a “discounted cash flow” analysis, which involves (take a deep breath) projecting future free cash flows and assigning them present values based on a chosen discount rate, which is often the weighted-average cost of capital. (See? We told you it was complex.) Despite all this work, results remain estimates, based on educated guesses.

There are simpler approaches to valuation. One very rough method is comparing a firm’s price-to-earnings (P/E) ratio to its growth rate. If the growth rate is much higher, the stock may be undervalued. You might also determine the relationship between the company’s average P/E and the average P/E of the S&P 500 index. If the stock has historically traded at 150 percent of the S&P 500’s P/E, which is currently 10, you might conclude that the stock should eventually hit a fair P/E of 15, assuming that nothing changes.

A simpler approach is just to check out the company’s historical P/E ratio range, which you can do at moneycentral.msn.com/investor/invsub/results/compare.asp. If the stock’s P/E has usually been between 15 and 20 and it’s 25 now, there’s a good chance it’s overvalued.

Don’t rely on any of these methods alone. Always gather plenty of information and look at many factors. Learn more at www.fool.com/investing/basics/index.aspx.

Ask the Fool: If I donate $50 to charity and my company matches that with another $50, what can I deduct on my tax return? – W.M., Cedar Rapids, Iowa

A: You can only deduct the $50 that you contributed.

My dumbest investment: I bought 100 shares of Dell stock the first year it was offered because I believed in the company but couldn’t afford its $3,000 computer. Good move. But I sold the shares two years later, after watching them “not go anywhere.” Very bad move. – S.O., online

The Fool Responds: Ouch. During its first year, Dell stock could often be had for less than $10 per share. In split-adjusted terms today, that amounts to around 10 cents per share. With a recent share price of about $22, that amounts to an average annual gain of more than 30 percent over the past two decades. Patience is important in investing. Still, recent investors in the company may regret their investment: Shares have been flat or down over most of the past eight years. At our stock-prediction forum, caps.fool.com, nearly a third of our all-star participants are bearish on the company, with more than two-thirds believing it will outperform the market eventually. Click in to see what investors are saying about it.

Foolish trivia: I was founded in 1980 to focus on Applied Molecular Genetics. Today, I’m one of the world’s largest biotechnology companies, helping people fight cancer, kidney disease, rheumatoid arthritis and other serious illnesses. (Perhaps you’ve heard of Aranesp, Enbrel, EPOGEN, Kepivance, Neulasta, NEUPOGEN, Sensipar or Vectibix?) Based in Los Angeles, I operate in more than 30 nations and employ 17,500 people. I was added to the Nasdaq 100 index in 1989 and to the Standard & Poor’s 500 index in 1992. I rake in nearly $15 billion annually, and invest more than $3 billion in research and development. Who am I?

Answer to last week’s trivia: I trace my history back to the 1880s. I’m a discount retailer, operating 1,600 stores in 47 states with annual revenues topping $63 billion. Names in my mall have included Dayton’s, Marshall Field’s, Mervyn’s and Hudson’s. I’m growing my international business, with a sharp focus on locations such as India. I’ve been giving 5 percent of my income to education, social services and the arts since 1946. I’ve sent checks to more than 100,000 schools in the past decade. In 2000, I changed my name from Dayton Hudson. If you’re lucky, your arrow might hit my new name.

Who am I? Answer: Target

The Motley Fool take: SGX Pharmaceuticals, we hardly knew ye. On Tuesday, Eli Lilly (NYSE: LLY) announced its purchase of the development-stage drugmaker, which had its IPO in 2006.

For $64 million in cash, not much by big-pharma standards, Lilly will be getting SGX’s very early stage pipeline of anti-cancer drug candidates. Though the purchase price represents a substantial premium over SGX’s recent share price, Lilly is still getting SGX much cheaper than it would have earlier in the year, after SGX’s lead drug underperformed in a phase-one study as a potential cancer treatment.

Buying a drugmaker working on targeted cancer therapies like SGX seems slightly outside any of Lilly’s main therapeutic focuses. wIn the past two years, Lilly has been opportunistically acquisitive, with multiple sensible buyouts and partnership deals.

In 2006, it purchased ICOS to regain full control over the erectile dysfunction drug Cialis, and last year it acquired the rights to a late-stage multiple sclerosis drug candidate from BioMS Medical. None of these deals are game-changing events for Lilly, and it’s hardly an acquisition monster, like other big pharmas. However, this deal does show that Lilly is willing to pay up if the price is right.

The Motley Fool is written by Tom and David Gardner Reach them at fool@fool.com, or by regular mail to Motley Fool, PO Box 19529, Alexandria, VA 22320-0529.