How to Determine X% Upside in Y Years
If a DCF is used to find the present value of a company, that means it is supposed to be worth $Z per share today.
Is there another way to identify upside in let's say 3 years besides multiples valuation like P/E or EV/EBITDA?
Bump. This would be helpful for a name I am currently researching.
Bump round 2.
Part 3.
I'm trying to understand the question. How does P/E tell you the upside in 3 years? As in assuming constant PE and multiplying it by future earnings? The problem with that is the multiple itself depends on future growth prospects which is likely different in 3 years
The thought process here is that you will do your research and build out your DCF using your research-based assumptions to forecast the financials. If your thesis supported a catalyst to occur within the next 3 years, you would use your year 3 projections as your time horizon where you would have already forecasted scenario-based EPS. Therefore, as you mentioned, you assume constant P/E to calculate target price (can always adjust given any earnings surprises). You use your DCF's present value and compare it to the P/E multiple stock price to find estimate appreciation over a 3 year period.
I wanted to know if there is a better way of identifying a longer term price target and upside estimates for a 3-5 year time horizon.
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