Reverse DCF Calculator
Instead of guessing a growth rate, let the price tell you. A reverse DCF solves the model backwards to reveal the exact annual growth the market is already assuming — so you can judge whether expectations are realistic.
Reverse DCF solves the forward model for growth: given the price, exit multiple and the return you demand, what constant EPS growth would the market have to be assuming? Compare it with the company's realistic growth to judge whether expectations are rich or cheap.
Worked example
A stock trades at $150 with $6.00 forward EPS. Assuming an 18× exit multiple, a 10-year horizon and a 10% required return, the reverse DCF returns an implied growth of about 13.7% per year. Ask yourself: has this company actually grown EPS ~14% for a decade, and can it keep doing so? If yes, the price is reasonable. If it has grown 5%, the market is pricing in an acceleration that may not arrive — a red flag.
Why value investors love the reverse DCF
A normal DCF forces you to invent a growth rate, and the answer is only as good as that guess. The reverse DCF flips the problem: it takes the one number you know for certain — today's price — and derives the growth assumption baked into it. That turns a vague question ("is this expensive?") into a concrete, testable one ("is 18% growth for ten years believable?"). It is the fastest way to sanity-check a popular stock.
How to read the result
Compare the implied growth to the company's historical growth and analyst expectations. If the market's implied growth is well below what a durable business can deliver, you may have found an undervalued stock. If it is well above the historical trend, the price is leaning on optimism. Pair this with the forward DCF to see both sides.
Frequently asked questions
- What is a reverse DCF?
- It is a discounted cash flow model run backwards. Rather than outputting a fair value from an assumed growth rate, it outputs the growth rate implied by the current market price.
- What growth rate means a stock is cheap?
- There is no universal number — it depends on the business. A stock is attractive when the growth the price implies is comfortably below what the company can realistically achieve.
- Does it work for unprofitable companies?
- Not well. The model needs a positive per-share metric. For pre-profit companies, use free cash flow per share once it turns positive, or a revenue-based model instead.
- Is the reverse DCF better than a normal DCF?
- They answer different questions. A DCF gives you a fair value; a reverse DCF tells you what the price assumes. Using both together is far more informative than either alone.
See the implied growth for every stock you own
Upload your portfolio and TrimmTrack shows the reverse-DCF implied growth next to each holding, so overpriced positions stand out at a glance.