Our Methodology

How we analyze stocks using DCF, Monte Carlo, and Reverse-DCF

What is DCF (Discounted Cash Flow)?

DCF valuation estimates the intrinsic value of a stock by projecting its future cash flows and discounting them back to today's value using the Weighted Average Cost of Capital (WACC). Our model projects 10 years of cash flows based on the company's actual financial data — revenue growth, operating margins, reinvestment needs, and ROIC. We use a sector-neutral approach, meaning we apply consistent assumptions across all companies in the same industry for fair comparison.

What is Monte Carlo Simulation?

A single DCF projection gives one answer. But the future is uncertain. Monte Carlo simulation runs 10,000 different scenarios, each with slightly different assumptions for growth rates, margins, and returns. This produces a probability distribution of possible outcomes rather than a single point estimate. You can see not just the expected return, but also the probability of positive returns, downside risk, and the full range of possible outcomes.

What is Reverse-DCF?

Instead of asking 'What is this stock worth?', Reverse-DCF asks 'What growth rate does the market already expect?' By solving for the growth rate that justifies the current stock price, we can compare market expectations against actual historical performance. A large gap between implied growth and actual growth may signal overvaluation or undervaluation.

Key Assumptions We Use

WACC (Discount Rate): Default 10%, adjusted per company risk. Terminal Growth Rate: 2% (long-term GDP-like growth). Projection Period: 10 years. Revenue Growth: Based on 5-year historical average. Operating Margin: Based on trailing 12-month data. Capital Intensity: Based on invested capital relative to revenue. These assumptions can be adjusted interactively using the sliders in the analysis report.

Data Sources

We use Finnhub for financial statements and market data, and Financial Modeling Prep for supplementary fundamental data. Data is updated daily. All calculations are performed server-side and cached for 24 hours for performance.

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