Growth today's price implies: what it means and how to read it
What is Growth today's price implies?
The yearly revenue growth, over the next ten years, at which our cash-flow model is worth exactly today's share price.
Every share price is a bet on the future. A discounted cash flow model takes assumptions and produces a value; a reverse DCF takes the price and produces the assumption. That is often more useful, because it is easier to judge whether a growth rate is believable than to forecast one.
The figure is re-solved at today's price rather than the price on the day of the valuation, so it stays current as the share moves.
How it is calculated
A worked example
Why does Growth today's price implies matter?
It turns the question around. Instead of asking what a company is worth, it asks what the market must be expecting for the price to make sense.
What is a good Growth today's price implies?
Compare it with what the company has actually grown at. An implied 25% a year for a business that has managed 10% means the price needs a great deal to go right.
There is no good level. The useful comparison is with the company's own three, five and ten year growth and with its industry. A low implied growth against a strong record suggests a margin of safety; a high one against a modest record suggests the opposite.