Stock valuation
What growth is the current price already assuming?
In the oven
Drag revenue growth or margin and watch fair value move. A reverse DCF works backwards from today's price to the growth it implies.
How to read the result
Technical
A reverse DCF solves for the growth rate that makes discounted cash flows equal the market cap.
Plain English
Instead of guessing what a stock is worth, it asks what the market already believes.
Technical
Fair value is shown as a low, median and high range across growth and margin cases.
Plain English
A range is more honest than one number. Small changes in guidance move it a lot.
A worked example
Pick a company that just changed its guidance. Move the growth slider to the old and new guidance and compare how far the fair value range shifts.
What it can't tell you
- It can't tell you whether the guidance will be met.
- Results depend heavily on the discount rate you choose.
- It doesn't work well for companies with negative free cash flow.
From the carousel: How guidance changes valuation
For education only. Not financial advice.