Hi, DCF is one of the methods to value a company. It is theoretically the soundest as it incorporates the influence of all the factors which affect valuation, such as growth rates, cash flows, cost of capital etc. However, it requires one to make several assumptions about the future which no one can do accurately. In today’s market, almost every decent company will look overvalued on DCF making it impossible for you to invest anywhere! Reverse DCF is an intuitively easier way to use DCF (read Expectations Investing by Michael Mauboussin) as it tells what expectations are priced in by the market in the current valuation. Besides this, other methods like P/E, EV / EBIDTA. Price to Book, Markt Cap to Sales etc. also have their own merits. There is no one holy grail to valuation and it is best to look at valuation from multiple angles and arrive at an overall judgement on the value of the stock.
Subscribe To Our Free Newsletter |