What the growth number in a reverse DCF means, how to compare it with a company’s record, and three ways it misleads. Worked examples from 51 companies.
The one-sentence version
A stock price is a bet on the future. A reverse DCF asks what that bet is: given today’s price, how fast would the company’s cash flow have to grow for ten years for the price to make sense? The answer is a percentage, and the useful thing to do with it is compare it with what the company has actually done.
How to read the number
- 1. Find the ask. This is the yearly growth the price needs. In our articles it sits at the top, for example Coca-Cola at 13.3% a year.
- 2. Find the record. Look at what the same measure did over the past four or five years. For Coca-Cola, revenue grew 5.5% a year.
- 3. Look at the gap. An ask far above the record means the price assumes the company changes gear. An ask below the record means the price assumes it slows down or merely repeats.
- 4. Ask why. A gap is a reason to read the business, not a verdict. That is what the rest of each article is for.
Three examples from our data
| Company | Price asks | Record | What it suggests |
|---|---|---|---|
| Tesla | 42.0% | 5.5% (free cash flow, 5 yrs) | The price is paying for robotaxi, self-driving software and robots that are not yet in the numbers. |
| Coca-Cola | 13.3% | 5.5% (revenue, 5 yrs) | A strong brand priced closer to a growth stock than its own guidance supports. |
| JPMorgan | 3.4% | 14.4% (net income, 5 yrs) | The price asks for far less than the bank has done, which is why the real question is the credit cycle. |
Three ways it misleads
- A distorted starting year. Ferrari’s four-year record starts in 2021, when the pandemic was still depressing cash flow, so its 26.7% growth looks better than the underlying pace. Pfizer’s record is distorted the other way by COVID vaccine sales.
- Growth that was bought. EQT grew free cash flow 47% a year, but most of that came from two acquisitions; organic volume grew 6.4%. A record built on deals is not a record of organic growth.
- The wrong yardstick. Microsoft looks demanding against free cash flow (1.9% (free cash flow, 5 yrs)) and much less so against cloud revenue growth. Which measure you trust changes the answer.
What it cannot tell you
A reverse DCF is not a price target and it is not a forecast. It moves a lot with the discount rate and the starting cash flow, which is why each article shows a sensitivity range. Use it to decide where to look harder, then read the filings. The full method, including how banks, REITs and companies with negative cash flow are handled, is on the methodology page.
Where to go next
See the companies whose prices ask for the most growth in the highest-ask ranking, and those that ask for the least in the lowest-ask ranking.
Frequently asked questions
What is a reverse DCF?
A reverse DCF starts from today’s share price and works backward to the growth in cash flow that price needs over the next ten years. It does not say what a stock is worth; it shows what the price already assumes.
Does a low required growth rate mean a stock is cheap?
No. A low required rate only means the price asks for little. If the company’s own record is negative, even a small ask needs a real reversal. Compare the required rate with the record before drawing a conclusion.
Which discount rate should I use?
There is no single right answer, which is why each article shows a range. We use 9% for large stable companies and 10% for cyclical or higher-risk ones as the base case, then show what 7% to 12% would do.
Figures come from each company’s reverse-DCF and snapshot articles and carry that article’s date. Not investment advice.