Lets say that I use a DCF or comps and find that there is an upside compared to the current market pricing of the stock. This essentially only tells me that there is an upside based on the intrinsic valuation, but how will this translate into practice?
What I am wondering is if there are some sort of technique to evaluate when this potential upside can be reached? For instance, I invest today based on higher intrinsic valuation, when can I expect that the market will realise this valuation?
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You need to identify a catalyst which will cause the price difference to close.
You have to identify a catalyst for the business that will cause the market to recognize the mispricing. This could be a macroeconomic event, or it could be something like a future earnings report, Investor Day, etc.
So you've identified what you think is a mispricing, the important thing to identify now is WHY is it mispriced, and what will cause it to realize its intrinsic value. We ironically depend on markets being mostly efficient to generate alpha. The only way for what we may deem to be a mispricing to be corrected is for the market to eventually become efficient. In other words, the market needs to realize an error has been made and then correct it by acting on it. So that is the real question, why aren't other investors coming to the same conclusion as you, and then acting on it? What has to occur in order for that to change? Those two questions should have you questioning why your conclusion is different than the market's. For you to have a true variant perspective that you can trust, you must have either an informational advantage, an analytical advantage, or a trading advantage. You won't get an informational advantage from public filings; everyone thinks they have an analytical advantage, but few do (as evidenced by the underperformance of the average fund); and you generally can only have a trading advantage in smaller caps where there is a lack of liquidity.
So what makes your estimate of value meaningfully different from the consensus; why are they not coming to the same conclusion as you; and if your view is not meaningfully different from consensus, why is it not being priced efficiently? If after you address those questions you still think you have identified a genuine mispricing, what will cause this to change and the security to become efficiently priced?
As others have mentioned, the point is to identify a catalyst. With that being said, I think your process is backwards if you are building to model to determine whether or not to buy a stock. You should have a qualitative opinion about a stock and express that view quantitatively through a model. The truth is, any valuation method, whether it's a DCF or comps or something else, can be manipulated to say whatever you want it to say. If you understand the industry and the stock in specific and then create a view based on that, you will have a much easier time identifying catalysts.
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