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Reverse DCF
A normal DCF asks “what’s it worth?” A reverse DCF asks the smarter question: what is the market already assuming? Put in the price and the cash flow, and read off the growth rate baked into today’s quote.
Assumptions
Sector presets
At $150, the market is implying
11.0%
FCF growth per year for 10 years, then 2.5% forever.
Demanding
Above-average execution is already in the price. You need a real edge to see upside here.
Single-stage reverse DCF: solve the growth rate where DCF value = today’s price. The gap between this number and what the company can actually deliver is the trade.
How fragile is that number?
Implied growth rate as you flex the discount rate and terminal growth. Greener = an easier bar to clear, redder = the market needs heroics.
| WACC ↓ / term g → | 1.50% | 2.00% | 2.50% | 3.00% | 3.50% |
|---|---|---|---|---|---|
| 7.0% | 8% | 7% | 6% | 5% | 4% |
| 8.0% | 10% | 9% | 9% | 8% | 7% |
| 9.0% | 12% | 12% | 11% | 10% | 10% |
| 10.0% | 14% | 14% | 13% | 13% | 12% |
| 11.0% | 16% | 16% | 15% | 15% | 14% |