There are many ways sell-side analysts try to find a company’s “fair” value — some useful, others pure illusion. The DCF method is like a massive LEGO set: every tiny assumption has to fit just right, and it opens the door to bias — overconfidence, hindsight, and anchoring. The multiples approach seems easier — compare with peers — but it assumes those peers are fairly priced, which history rarely supports. Reverse valuation flips the process: it starts from the market price and discount rate, then works backward to reveal the free cash flow assumptions already baked into the price. It’s valuation without the fluff — a direct reality check on what the market actually believes. We use a Free Cash Flow to Equity (FCFE) model to measure what truly belongs to shareholders: Earnings + Amortization – CAPEX – average acquisition cost = FCFE. We ignore working capital and debt changes — they’re noisy and not part of the core business. Everything boils down to three numbers: earnings, amortization, and investments. For forecasts, we apply the H-model (a 10-year two-stage growth fade) with the terminal growth equal to the risk-free rate (RFR) — the 10-year government bond yield. All cash flows are discounted by the cost of equity = RFR × beta + 5% ERP. The result: a clean, noise-free picture of what the business is really worth.
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