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Reverse DCF: what the price implies

Solve the model backwards to find the growth the market is paying for.

Instead of forecasting growth and computing a value, hold everything else fixed and ask: what initial revenue growth makes the DCF value equal today's price? That number is the market's implied expectation. You then judge whether it is plausible, which is often easier than forecasting from scratch.

Find g∗ such that V(g∗)=P,g∗∈[−50%, 60%]\text{Find } g^* \text{ such that } V(g^*) = P, \quad g^* \in [-50\%,\ 60\%]

The engine solves this by bisection: it evaluates the full DCF at the midpoint of the interval, keeps the half where the sign of V−PV - P changes, and repeats until the value is within 0.01% of price. If the price is outside the reachable range no solution is reported.

A stock priced for 35% growth in a market growing at 5% needs a story to justify it. A stock priced for negative growth in a healthy business may be a bargain. This approach is the core of Mauboussin and Rappaport's Expectations Investing.

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