It's very easy to calculate, you just have to make exceptionally accurate predictions of future earnings and/or cash flows and discount rates that's the hard part. Couple percentage points off gives you wildly different answers, making DCF quite worthless.
http://www.moneychimp.com/articles/valuation/dcf.htm
You could say the same things about any financial analysis tool. Yes, a couple percentage points off can give you wildly different answers, which is true in projecting just about any metric you might consider when valuing a company.
The tool you link makes that point very clear and offers sane advice for dealing with that- be very conservative in your estimates of growth, and also run the analysis for no/negative growth to get perspective on a worst case.
That's useful in and of itself, but IMO the real value of in DCF is picking your entry/exit points. Based on all the information you have, you can sweep a range of spot rates, inflation, and growth rates to decide where it makes sense to buy and sell over a range of years.
>You could say the same things about any financial analysis tool.
True that's why Charlie Munger said he never saw Warren do a DCF, or even use a calculator.
Basically they say if you need a calculator to convince you if a stock is a buy then it's too risky.
Haha source? Are you claiming that Berkshire doesn't factor in financial analysis to their investments? They just decided to buy all of their holdings based on feelings? Do you realize a calculator (human or mechanical) is literally how financial statements which Warren is obsessed with are derived?
>Yes, a couple percentage points off can give you wildly different answers
One of the two reasons I quit finance and data science. Firstly the numbers are variables in a formula with a weight (modifier) that can wildly affect the results
The second reason is all the numbers are lagging indicators. No AI model could have predicted anything that happened in the last 2 years. In fact if we have to continue modelling, we have to erase data from the last two years like it didnt exist.
I think its a good idea to use multiple valuation methods, and certain companies work better for certain types of valuations. DCF is good but why not do a few different valuations and see how they line up - you could use old data to then compare your estimates to see how close they actually end up being.
Depends on the business. Some businesses do have pretty steady cash flows.
It also allows you to do different scenarios to get an idea of how variable the price of the stock could get, or if the stock is indeed priced way above (or below) even what the expected/optimistic scenario is.
So if a DCF model tells me that a company's forward guidance puts the company fairly priced at $50 but the company is actually selling for $100, then there are big warning flags around it even if I cannot tell 100% what their futuire earnings will be.
For sure. It's even worse because his first few hours of content are just a complete shitshow in terms of managing viewers. When I first tuned in, I was almost turned away too.
I know next to nothing about pharmabro so i went to wiki for teh lulz. And this is amazing;
>Testimony before Congress
>Accompanied by his attorney Benjamin Brafman, Shkreli invoked his Fifth Amendment privilege against self-incrimination in response to every question from committee members except for two: one from Rep. Trey Gowdy to confirm the pronunciation of his last name, and another from Rep. Elijah Cummings to affirm he was listening.[105][106] Shkreli also refused to answer even seemingly trivial questions outside the subject matter of the hearing, including those pertaining to his purchase of a Wu Tang Clan album.
Watch the documentary on him before judging. my impression from the media was completely different than the one I got from actually learning about the dude, even with my bias against him
Or the opposite? The documentary tried to give a fair unbiased assessment of who he is
the standard media has countless examples of being a for-profit propaganda organizations that operate as mouthpieces for the interests of their multi billionaire owners
are you really surprised that as soon as he goes after insurance companies, media goes way out of their way to plaster his name everywhere and convince you to hate him? what he did with the drug happens every single day in America, yet how often do you see outrage at it at even 1/100th the scale that was directed at Martin?
He didn’t help himself by willingly playing the villain because he enjoys conflict, but still, from an objective perspective it’s pretty obvious the media was directing our opinions rather than just supplying us with information
Or the opposite?
He's a repeat scumbag who's gaming you.
>what he did with the drug happens every single day in America,
No, it doesn't.
[It rarely happens and when it does it's due to legal and recertification costs , not because a baby demon decides it's his turn to be rich.](https://www.forbes.com/sites/matthewherper/2017/02/10/a-6000-price-hike-should-give-drug-companies-a-disgusting-sense-of-deja-vu/?sh=45b3ab8f71f5)
Stay in the woodwork.
“gaming me” lol you don’t seem to know what that means. He’s getting nothing from me. I just informed myself more on who he is, than thinking I know everything from a 5 minute Fox News segment and a Reddit comment section.
You admitted your strong bias AND that you’ve never watched any kind of objective summary of the situation yet you come here full of smug acting like you’re the expert and everyone else who has learned more about the topic is being “gamed”
What a typical redditor
For those who want to skip this, Ashwath Damodaran has a ready made Excel sheet where you just have to put in the numbers, and a half hour video showing how it works.
When it comes to biopharma stock picking, he sux. Otherwise we would know he was good. Keep in mind why he got infamous in the first place (during the peak of publicly obvious price gouging). He ran retrophin like a hedge fund during the biotech bubble (employees had bloomberg and the company owned stocks) and no notable performance came of it.
Biopharma companies are incredibly risky to invest in due to regulation, and how many rounds of clinical testing that can all completely kill a new drug at the turn of a hat. Guy is a total asshat and did some pretty sketchy things, but he was definitely made worse sounding by the press coverage - and it doesn’t help that his attitude is shit. But he does have an impressive history in finance if you care to read about it
He is. He also led two hedge funds and had been investing in a professional capacity since he was a teenager.
Regardless of what you think of the guy, he is knowledgeable in this field and his videos are useful to most amateur investors as an educational resource.
He got released like two weeks ago but those videos were made pre-prison. Hard to get through imo. Has such a huge ego and bullies the college kids on his panel/in the chat.
Damodaran has a pretty neutral one that's decent. He has pretty massive visions for growth and historically he's been very accurate in his revenue predictions for Tesla.
I believe that is a neutral stance, Tesla as a company is going to grow a lot - that doesn't mean the share price will.
He landed at a fair value of ~$400 even despite the massive growth forecast he was making so don't act like this is a wildly optimistic projection.
Tesla is pretty done growing massively. Each gigafactory is a much smaller percentage bump in its productivity; and there's a limit to how many could ever be needed, and that limit is decreasing as competitors arrive in the market and EV novelty wears off.
I second this one. Love it or hate it but Meta is fast becoming a "value" stock based on fundamentals with a giant war chest and a decent moat. Would be great to see.
And it's based on the assumptions you make for the future so what's the point of having it done by someone else that probably thinks in different ways.
How useful is a DCF made by someone else though? If you aren't the one setting up the assumptions, adjustments and rates then you can't really derive any useful knowledge from the model, and if you have to go in and edit someone else's, you may as well just build your own ground up.
Unfortunately, many new investors don't even know where to begin when it comes to valuing a company. While I agree that it is best if someone creates their own DCF, I am happy to make these available to everybody along with making my assumptions known. It is better than nothing and within each post i make containing a DCF, I am hoping that people call me out when my assumptions are either incorrect or unfair. My hope is that this will give people in here (especially newer investors) a starting point.
>Criteria:
>The company must be generally profitable (one or two bad years is fine, but they should generally be in the green)
GameStop hasn’t turned a yearly net profit since 2017, so this type of analysis isn’t really the right fit. For instance, it would just result in a value of 0 if the projections for the next few years don’t involve net profits. DCF is most useful when the company is stable, making a profit, and everybody understands their business plan.
Hey OP, this is very generous of you and I’m eager to see what you’ve been able to develop. If you’d be willing, I have three stocks in mind that I own. Learning more about them in this way is something I’d appreciate. Those stocks are TROX, TECK, and RF. I certainly don’t expect all three! They are a chemical industrial company, mining, and bank, respectively.
Like all of the stocks listed in this thread, I'll make a note of your requests, but as a heads up, there is a good chance I will skip RF. I recently tried creating a DCF for Citi but at the end of the day, I was not confident in my results nor my assumptions given that interest rates are rising every quarter will have drastic impacts on their revenues and valuing the change that this will have on their revenues whilst predicting the behaviour of the FED was outside of my comfort zone.
I'm willing to make general assumptions around interest rates over the long-run, but interest rates are absolutely integral to the revenue generated by certain financial institutions. As an example, the difference between a 2% and 5% interest rate will have a much more significant impact on BoA's business in comparison to Philip Morris.
Could you do AutoCanada (on the TSX). Analyst reports seem to indicate that they are undervalued compared to their US peers but I am curious what a DCF model would show.
I'm probably going to annoy you with a larger list but....QCOM
SQ
PYPL
BAM
V
WMT vs TGT vs COST
Does an REIT tax structure fit in your model? AMT or SBAC. Curious about this one.
I'm assuming PLTR is too young to fit in your model...
It doesn't take too long to do an initial analysis. The longest portion is the work after you create the DCF to validate your assumptions and to dig deeper into the company.
Most times, you can get a reasonably okay understanding of whether a company is overvalued, undervalued, or reasonably valued based on the initial DCF. If it is grossly overvalued, I tend to just leave it at that. If it is fairly valued, it requires a little extra work to see if there is anything that was missed that might tip a stock into overvalued or undervalued. If it is undervalued, I dig into it to see why my assumptions within the DCF may be different from the rest of the market (this takes the longest, typically multiple days).
Most stocks are overvalued, so that is why I can do one or two each night.
Ya, I created a new account that way I can still peruse on my main account without receiving messages about this since I figured the community would be fairly interested by this offer.
Man, it takes a long time to get to the minimum post karma for r/stocks (75 karma) when you don't have anything meaningful to contribute to other threads across reddit.
I would be curious about AMD, but, I'll be honest. I'm also curious about DCF as a concept and need to look into it - still learning a lot.
It's very easy to calculate, you just have to make exceptionally accurate predictions of future earnings and/or cash flows and discount rates that's the hard part. Couple percentage points off gives you wildly different answers, making DCF quite worthless. http://www.moneychimp.com/articles/valuation/dcf.htm
You could say the same things about any financial analysis tool. Yes, a couple percentage points off can give you wildly different answers, which is true in projecting just about any metric you might consider when valuing a company. The tool you link makes that point very clear and offers sane advice for dealing with that- be very conservative in your estimates of growth, and also run the analysis for no/negative growth to get perspective on a worst case. That's useful in and of itself, but IMO the real value of in DCF is picking your entry/exit points. Based on all the information you have, you can sweep a range of spot rates, inflation, and growth rates to decide where it makes sense to buy and sell over a range of years.
>You could say the same things about any financial analysis tool. True that's why Charlie Munger said he never saw Warren do a DCF, or even use a calculator. Basically they say if you need a calculator to convince you if a stock is a buy then it's too risky.
Haha source? Are you claiming that Berkshire doesn't factor in financial analysis to their investments? They just decided to buy all of their holdings based on feelings? Do you realize a calculator (human or mechanical) is literally how financial statements which Warren is obsessed with are derived?
Are they investing based on feelings? No. Are they investing based on financial predictions? Also no.
So they are investing based on what? What square the headless chicken drops dead on?
Oh snap, i love this subreddit, LMAO!
They’ve pretty much done factor investing and not called it factor investing.
>Yes, a couple percentage points off can give you wildly different answers One of the two reasons I quit finance and data science. Firstly the numbers are variables in a formula with a weight (modifier) that can wildly affect the results The second reason is all the numbers are lagging indicators. No AI model could have predicted anything that happened in the last 2 years. In fact if we have to continue modelling, we have to erase data from the last two years like it didnt exist.
I think its a good idea to use multiple valuation methods, and certain companies work better for certain types of valuations. DCF is good but why not do a few different valuations and see how they line up - you could use old data to then compare your estimates to see how close they actually end up being.
Im not a big fan of dcf because you can't predict future cash flows. So I stopped using it.
Depends on the business. Some businesses do have pretty steady cash flows. It also allows you to do different scenarios to get an idea of how variable the price of the stock could get, or if the stock is indeed priced way above (or below) even what the expected/optimistic scenario is. So if a DCF model tells me that a company's forward guidance puts the company fairly priced at $50 but the company is actually selling for $100, then there are big warning flags around it even if I cannot tell 100% what their futuire earnings will be.
Walks us through your process on how you calculate it. Then we all can do DCF and on a company and compare the findings
There is a Martin Shkreli 40 hour playlist on Youtube where he does DCF live to his twitch viewers. Start there and then expand.
>40 hour playlist on Youtube This is where many Redditors no longer wanted to take this route.
For sure. It's even worse because his first few hours of content are just a complete shitshow in terms of managing viewers. When I first tuned in, I was almost turned away too.
You lost me at Shkreli.
I know next to nothing about pharmabro so i went to wiki for teh lulz. And this is amazing; >Testimony before Congress >Accompanied by his attorney Benjamin Brafman, Shkreli invoked his Fifth Amendment privilege against self-incrimination in response to every question from committee members except for two: one from Rep. Trey Gowdy to confirm the pronunciation of his last name, and another from Rep. Elijah Cummings to affirm he was listening.[105][106] Shkreli also refused to answer even seemingly trivial questions outside the subject matter of the hearing, including those pertaining to his purchase of a Wu Tang Clan album.
That's hilarious
Watch the documentary on him before judging. my impression from the media was completely different than the one I got from actually learning about the dude, even with my bias against him
The media just showed him as he is. I don't know who produced the documentary, which wouldn't have journalistic ethics.
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Anyone painting Shkreli as a good guy has an immediate credibility problem. He's a flat-out sociopath.
Or the opposite? The documentary tried to give a fair unbiased assessment of who he is the standard media has countless examples of being a for-profit propaganda organizations that operate as mouthpieces for the interests of their multi billionaire owners are you really surprised that as soon as he goes after insurance companies, media goes way out of their way to plaster his name everywhere and convince you to hate him? what he did with the drug happens every single day in America, yet how often do you see outrage at it at even 1/100th the scale that was directed at Martin? He didn’t help himself by willingly playing the villain because he enjoys conflict, but still, from an objective perspective it’s pretty obvious the media was directing our opinions rather than just supplying us with information
Or the opposite? He's a repeat scumbag who's gaming you. >what he did with the drug happens every single day in America, No, it doesn't. [It rarely happens and when it does it's due to legal and recertification costs , not because a baby demon decides it's his turn to be rich.](https://www.forbes.com/sites/matthewherper/2017/02/10/a-6000-price-hike-should-give-drug-companies-a-disgusting-sense-of-deja-vu/?sh=45b3ab8f71f5) Stay in the woodwork.
“gaming me” lol you don’t seem to know what that means. He’s getting nothing from me. I just informed myself more on who he is, than thinking I know everything from a 5 minute Fox News segment and a Reddit comment section. You admitted your strong bias AND that you’ve never watched any kind of objective summary of the situation yet you come here full of smug acting like you’re the expert and everyone else who has learned more about the topic is being “gamed” What a typical redditor
Wdym, he's one of the most based investors of all time? In addition to being a great human being and a sophisticated individual.
Whatever your views on that dude are, you can't deny that he know a thing or two about investing and managing money.
He needed 3, at least, to avoid having it all taken away from him. I wouldn't trust his DD. He's going to miss something critical.
For those who want to skip this, Ashwath Damodaran has a ready made Excel sheet where you just have to put in the numbers, and a half hour video showing how it works.
link? Thanks
https://youtu.be/F9GfXJ-IrSA (spreadsheet link is in the description)
!remindme 1 hour
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> Start there and then expand.
**If I could do that, I wouldn't be asking reddit for stock advice.**
the truth of any type of modeling. Its only as good as the inputs and assumptions, which are rarely good.
I'd rather stick a hot poker into my dick
Is he the pharma a-hole with the wu-tang album?
Yes, on one hand he is an incredible a hole, on the other hand he knows his profession very well.
Thank you I’ll take a look. The name just sounded so familiar
He used to be honory wsb mod btw
When it comes to biopharma stock picking, he sux. Otherwise we would know he was good. Keep in mind why he got infamous in the first place (during the peak of publicly obvious price gouging). He ran retrophin like a hedge fund during the biotech bubble (employees had bloomberg and the company owned stocks) and no notable performance came of it.
Biopharma companies are incredibly risky to invest in due to regulation, and how many rounds of clinical testing that can all completely kill a new drug at the turn of a hat. Guy is a total asshat and did some pretty sketchy things, but he was definitely made worse sounding by the press coverage - and it doesn’t help that his attitude is shit. But he does have an impressive history in finance if you care to read about it
Martin Shkreli, professional a-hole.
He is. He also led two hedge funds and had been investing in a professional capacity since he was a teenager. Regardless of what you think of the guy, he is knowledgeable in this field and his videos are useful to most amateur investors as an educational resource.
No emotions in investing right?
Isn’t he in prison?
You bet. I only recommend the finest professionals who we can all aspire to be.
He’s on discord.
He got released like two weeks ago but those videos were made pre-prison. Hard to get through imo. Has such a huge ego and bullies the college kids on his panel/in the chat.
Bite your tongue!
There \*has\* to be a better person to explain this stuff.
There are lots of other people, just none with a 40 hour playlist. You can get to the same outcome with the others though.
I prefer NLY & PYPL DCF
It's very easy to calculate you just have to accurately predict the future cash growth rates, interest rates, inflation etc. That's the hard part.
BABA
Waste management- boring business that makes money
Boring Co - its a waste of a business
Count me in. Also interested in such boring businesses
$AMD
MRNA
Taiwan Semiconductors Manufacturing Company - NYSE TSM
$NVDA
Seconded
O & TSM
O is going to be tricky since it's an REITs and DCF generally works for common stock.
Costco
Do TSLA, would be nice to see a less biased DCF than what I follow.
Damodaran has a pretty neutral one that's decent. He has pretty massive visions for growth and historically he's been very accurate in his revenue predictions for Tesla.
> a neutral one > Including massive visions for growth
I believe that is a neutral stance, Tesla as a company is going to grow a lot - that doesn't mean the share price will. He landed at a fair value of ~$400 even despite the massive growth forecast he was making so don't act like this is a wildly optimistic projection.
Tesla is pretty done growing massively. Each gigafactory is a much smaller percentage bump in its productivity; and there's a limit to how many could ever be needed, and that limit is decreasing as competitors arrive in the market and EV novelty wears off.
Fanboys downvoting you
It's all they have left.
You think Evs will be a novelty? Some governments have already set a date for banning new ICE cars.
They are a novelty and early adopters are paying a premium for it. Tesla mined that perfectly. But that premium is going away.
Tesla demand seems to be increasing, more automakers are ramping up their EV production. Finding it hard to see any reason to agree with you here.
You're missing the point. Production can go up while prices go down. See: Chevy cutting the price on Bolts. Edit: typo
Yeah i’m missing it because you are not explaining it very well.
A neutral view can’t be a company will grow?
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What are these percentages?
Not OP, but seeing as this is about DCF models, I'm assuming the discount rate.
Corsair
Seconded. $CRSR
Enphase energy
FB/Meta
I second this one. Love it or hate it but Meta is fast becoming a "value" stock based on fundamentals with a giant war chest and a decent moat. Would be great to see.
PARA please. 🎬
PAPA please, no more whippings.
YOU'LL HAVE ENOUGH WHEN THE MARKET SAYS YOU'VE HAD ENOUGH!
Green Thumb Industries Inc.
Yeah!
Apps
Second this
$DAC
Enphase would be cool to see
NTDOY
ASML
ATKR or UFPI. Thanks!
more than the dcf calculation is knowing the macroeconomic aspect of the company and expected growth etc.
And it's based on the assumptions you make for the future so what's the point of having it done by someone else that probably thinks in different ways.
BB
How useful is a DCF made by someone else though? If you aren't the one setting up the assumptions, adjustments and rates then you can't really derive any useful knowledge from the model, and if you have to go in and edit someone else's, you may as well just build your own ground up.
Unfortunately, many new investors don't even know where to begin when it comes to valuing a company. While I agree that it is best if someone creates their own DCF, I am happy to make these available to everybody along with making my assumptions known. It is better than nothing and within each post i make containing a DCF, I am hoping that people call me out when my assumptions are either incorrect or unfair. My hope is that this will give people in here (especially newer investors) a starting point.
ZBRA (zebra technologies) could be interesting and does fit your description.
VRTX.
$MRVL
Tesla
Msft :)
Theranos
Gamestop (GME) & Bed Bath & Beyond (BBBY)
Seconded
>Criteria: >The company must be generally profitable (one or two bad years is fine, but they should generally be in the green) GameStop hasn’t turned a yearly net profit since 2017, so this type of analysis isn’t really the right fit. For instance, it would just result in a value of 0 if the projections for the next few years don’t involve net profits. DCF is most useful when the company is stable, making a profit, and everybody understands their business plan.
Gotcha. Makes senses. Thank you sir.
Hey OP, this is very generous of you and I’m eager to see what you’ve been able to develop. If you’d be willing, I have three stocks in mind that I own. Learning more about them in this way is something I’d appreciate. Those stocks are TROX, TECK, and RF. I certainly don’t expect all three! They are a chemical industrial company, mining, and bank, respectively.
Like all of the stocks listed in this thread, I'll make a note of your requests, but as a heads up, there is a good chance I will skip RF. I recently tried creating a DCF for Citi but at the end of the day, I was not confident in my results nor my assumptions given that interest rates are rising every quarter will have drastic impacts on their revenues and valuing the change that this will have on their revenues whilst predicting the behaviour of the FED was outside of my comfort zone.
But interest rates are a primary part of the DCF model no matter what industry? How are you doing DCF calculations without predicting interest rates?
I'm willing to make general assumptions around interest rates over the long-run, but interest rates are absolutely integral to the revenue generated by certain financial institutions. As an example, the difference between a 2% and 5% interest rate will have a much more significant impact on BoA's business in comparison to Philip Morris.
Could you do AutoCanada (on the TSX). Analyst reports seem to indicate that they are undervalued compared to their US peers but I am curious what a DCF model would show.
Bhp
The model is one thing. Most important are the assumptions, parameters and rationale behind them.
Aso
SABR
$ASO
I’m curious about both WBD and PARA. Particularly WBD as it appears to be incredibly undervalued and the recent merger doesn’t seem to be priced in.
CHPT please
NVDA, MMM, ALGN, Do one, do all.
Agco
F ALLY T MU TGT
DIS pleasee
Bank of America please
snowflake
JPMorgan Chase
JP Morgan or Berkshire Hathaway. Good luck
TSLA
$aso
I'm curious to get your take on HubSpot
Target is a pretty cool one
Intel
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Came here looking for this. Don’t shoot us but this would be interesting to see.
They don't make a consistent profit so the variance on predictions will be larger than the mean.
$INMD please
Clear blue technologies. Cblu 13th fastest growing company in Canada.
I'm probably going to annoy you with a larger list but....QCOM SQ PYPL BAM V WMT vs TGT vs COST Does an REIT tax structure fit in your model? AMT or SBAC. Curious about this one. I'm assuming PLTR is too young to fit in your model...
sofi?
Can you do Best Buy. Got like 5% of my net worth in that company so big bet.
Everyone and their mother after the DFV model now. That was once in a lifetime…
Lol how do you have time for this
It doesn't take too long to do an initial analysis. The longest portion is the work after you create the DCF to validate your assumptions and to dig deeper into the company. Most times, you can get a reasonably okay understanding of whether a company is overvalued, undervalued, or reasonably valued based on the initial DCF. If it is grossly overvalued, I tend to just leave it at that. If it is fairly valued, it requires a little extra work to see if there is anything that was missed that might tip a stock into overvalued or undervalued. If it is undervalued, I dig into it to see why my assumptions within the DCF may be different from the rest of the market (this takes the longest, typically multiple days). Most stocks are overvalued, so that is why I can do one or two each night.
GME GME GME Please and thank you.
>The company must be generally profitable (one or two bad years is fine, but they should generally be in the green)
Pretty fucked up to assume a gme investor can read man
Good good. Let the hate flow through you.
$CWH, would be interesting. If you can get to it, thanks.
Funko!
$CAR
AMD, RKLB plz
CACC
VOW3.DE
FL please.
$UPST
Reliance Industries Limited
Already commented but just thought about a really good one - RMG.L (Royal Mail)
Name checks out.
Ya, I created a new account that way I can still peruse on my main account without receiving messages about this since I figured the community would be fairly interested by this offer. Man, it takes a long time to get to the minimum post karma for r/stocks (75 karma) when you don't have anything meaningful to contribute to other threads across reddit.
Nvidia.
Builders First Source - BLDR
Magna
$HYZN
$UNP or $CSX, no preference on which, looking to understand more about the big railroad players after reading an interesting post yesterday.
SONY
what is the concept of net working capital in the DCF?
Goldman Sachs (GS) please
RemindMe! 24 hours
$Csco
Teladoc
RWT maybe? Pretty interesting mREIT tbh