Recently, I read a book, A Random Walk Down Wall Street by Burton G. Malkiel. In the book, he discussed two ways to valuate a stock - The firm-foundation theory and the castle-in-the-air theory.
The firm-foundation theory assumes that each stock has a true value which is equal to the present value of all its future dividends. It is likely that you have heard something similar because this approach is somewhat similar to Warren Buffett's style of "buying securities whose prices are below the true value, and selling those with prices are above the true value".
Of course, the challenge is in determining the true value, which can be broken down into two parts.
1) Forecasting of future dividends of that stock, and
2) Estimating the (current and future) market interest rate.
The castle-in-the-air theory is also known as the "greater fool" theory. It does not matter how much you pay for ......