Reverse DCF: Solving for What the Market Is Already Pricing

Forward DCF Has a Problem

Running a conventional DCF requires three assumptions: revenue growth, margin path, and discount rate. Each is a judgment call, and each compounds. Put in reasonable-looking numbers, get an intrinsic value that just happens to agree with your prior. Then run the same model with slightly more conservative inputs and get a very different answer. The reverse DCF sidesteps this by reversing the question: instead of solving for price, it takes today's market cap as given and solves for the *growth rate* that makes today's price fair. That single number is testable against what you know about the business.

What the Reverse DCF Card Shows

The Reverse DCF card takes current enterprise value, a fixed WACC (default 9%, override available), current free cash flow baseline, a 10-year explicit forecast window, and a terminal growth rate (default 2.5%). It solves numerically for the FCF growth rate across the forecast period that equates present value with today's market cap. Output is a single headline number — "market-implied FCF growth" — plus a sensitivity strip showing implied growth at ±1% WACC and ±1% terminal growth to bound the result.

Reading the Number

The implied-growth number by itself isn't an answer; it's a benchmark against which you check business reality. If the reverse DCF says the market is priced for 15% FCF growth for a decade, the next question is whether this company's TAM, unit economics, and competitive position can deliver that. Three useful comparisons: vs the issuer's last 5-year growth (if market-implied > realized, the bar is raised), vs peer-group implied growth (if higher than peers without a differentiated reason, risk is asymmetric), vs sell-side forward estimates (if market is pricing above consensus, you're paying for upside the analysts haven't modeled).

Where It Fits

Reverse DCF pairs tightly with the conventional DCF card — use them together to triangulate. Cross-check with the Peer Comparison card to see whether peers at similar multiples have delivered what this stock is priced to deliver. For cyclical names, also check Earnings History — implied growth that ignores cyclicality is often a trap.

Open the Reverse DCF card → /app/stocks/AAPL/fundamentals