Our approach to valuation focuses on quantifying the market's future cash flow expectations embedded in securities prices rather than making our own predictions on future cash flows.
Our approach to valuation focuses on quantifying the market's future cash flow expectations embedded in securities prices rather than making our own predictions on future cash flows. We prefer to be a critic of Mr. Market as a fortuneteller for future cash flows than be a fortuneteller ourselves. This white paper and video explain exactly how our discounted cash flow (DCF) valuation models work, and how our clients use them to get the best insight possible into the future cash flow implications of their target prices and market prices.
We also like to point out that our reverse DCF models do not require us to be accurate forecasters. As long as we project a reasonable extrapolation of past performance, our models will always give us discreet insight into the market’s expectations for future cash flows and how those expectations compare to past performance.
Once armed with accurate information on the expectations embedded in stock prices, investors can make prudent decisions about the valuation of securities.