Reverse DCF — the market’s implied growth

the DCF run backwards · Valuation — what a company is actually worth

The same machinery, flipped. Instead of “given this growth, what’s the stock worth?”, it asks “given today’s price, what growth rate is the market already assuming?” It solves for the one growth number that makes the DCF equal the current price.

It turns “cheap or expensive?” into something you can actually judge. If the price implies 4% growth and the company is really growing 15%, the market may be too pessimistic — that gap is the edge. If the price implies 25% growth and the company grows 10%, you’d be betting on a lot going right. A stock isn’t cheap because a DCF says so; it’s cheap when the market’s implied growth is mathematically below what the company delivers.

find g   such that   DCF(g) = today’s price
(solved by bisection, searching g from −60% to +150%)

g

— the year-1 free-cash-flow growth rate the current price implies

bisection

— a solver that repeatedly narrows a range until it lands on the g that fits

• The Balance — using a DCF to value a stock ↗