Fair Value Calculation

General
3

I came across this post, u can give it a read.

If a new company went for IPO, as an investor, how can I determine that I am investing in a good company, since there is no past data available at the exchanges? - #2 by Karthik.

Most valuation models involve discretionary assumptions regarding a company’s future growth, profit margins, and discount rates etc.

I find the Reverse-DCF model to be a good alternative to this.

Here, instead of predicting the future cash flows, Growth rate etc, we get to determine on what rate should the profits/sales/cash flows of a company needs to grow, to justify it’s current price.

So it can help in determining if a stock is overvalued/undervalued and if the future growth rate used in this assumption is sustainable or attainable.

@Karthik do we have any article on Reverse-DCF in varsity. Also i would love if we could add a search button in varsity for quick access.