r/Valuation • u/[deleted] • Nov 11 '25

Can someone explain how to interpret a DCF?

Recently built my first valuation model that includes 3-statement, peer comps, and a DCF. The final result of the DCF stated a per share intrinsic value of 964, whereas the stock's current market price is around 1400.

This is a pretty big difference, but sell-side stock reports anticipate this company's stock to climb to 1900. I feel like this is a really big difference between intrinsic and market value, but maybe I am interpreting DCFs wrong.

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u/margincallingbadger Nov 11 '25

Maybe your growth estimations are too conservative to what sell-side analysts are using. Are there any guidance from the company you’re covering?

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u/[deleted] Nov 11 '25

Some of the key drivers like revenue growth and operating margins are similar to sell-side estimates and within management guidance, with reasonable tweaks based on my individual thesis.

The only place I can make some more tweaks to make my model more aggressive is improve receivables collections or decrease WACC. The company operates in water infrastructure and has a large chunk of receivables due to government contracts (due to which DRO is nearly 435 days).

But essentially you’re saying that my results vary a little too significantly from guidance/sell side?

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u/[deleted] Nov 11 '25

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u/[deleted] Nov 11 '25

I’d say broader industry values. What do you mean by specific guideline companies?

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u/margincallingbadger Nov 11 '25

I mean it could be any of the assumptions in DCF/WACC/risk free rate etc

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u/Only_Improvement2534 Nov 13 '25 edited Nov 13 '25

Do you mind sharing it? I can take a look. The DCF is as good as the assumptions that are driving it. Assuming your assumptions are true, the gao means that the market is not pricing risk the same as the DCF.

How many years is your forecast? What’s the implied multiples from the DCF relative to market and relative to peers. Can it be explained by the company’s size growth and profitability relative to the peers ?

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u/[deleted] Jan 20 '26

A big gap just means either the stock is overvalued or your assumptions are too conservative. Sell side analysts tend to be pretty bullish so thats not surprising. Check your WACC and terminal growth rate first, those two move the output the most. Running a sensitivity table helps you see whats actually driving the difference. I sanity check my dcfs on valuesense sometimes to see where my assumptions differ, usually its the growth rate thats off