Growth Priced Into a Stock

Water Cooler Investing
#1

How do you guys calculate growth priced into a stock?

Do you just model out EPS (say 5-years), apply a terminal multiple, discount the terminal price back using the cost of capital, then find the growth rate that makes the model price equal the current stock price?

I work in PWM so I don’t do much of this on a daily basis; just wanna know how the pros do it… :wink:

#2

Discounted cash flow

#3

https://www.gurufocus.com/news/220210/reverse-dcf-another-way-to-evaluate-stocks

#4

Thanks for the link. I googled reverse DCF and other models use free cash flow instead of EPS…is that more common? Also neither account for share buybacks; is that something you just adjust subjectively?

#5

Share buybacks reduce the share count in your per share price

http://aswathdamodaran.blogspot.com/2018/10/high-and-higher-money-in-marijuana.html?m=1

#6

What about reversing the FCFE model from level 2 to calculate the implied growth rate?

That makes theoretical sense but I don’t see any examples online that do it that way…