Cash Flow Valuation
How to Spot Undervalued Stocks

D????unt?d C??h Flow (DCF) ?? a valuation metric u??d b? ?nv??t?r? (?n? of th? ??ur??? ?f ????t?l f?r a l?rg? bu??n???) t? g?ug? th? ?ttr??t?v?n??? ?f ?n ?nv??tm?nt ????rtun?t?. M??t ????l? ?????t th?t money l???? v?lu? ?v?r time, wh??h is a ??rt??ul?rl? ?m??rt?nt ??n??d?r?t??n f?r v?lu? investors wh? buy ?nd hold: it's a f??t th?t next ???r'? $100 w?ll b? w?rth l??? th?n this ???r'? $100. The v?lu? ?nv??t?r w?ll ???l? a DCF ?n?l???? to ?r?j??t?d ???h fl?w? (??rh??? ?v?r 5 ???r? ?r m?r?) t? ?rr?v? ?t th? net current w?rth of th??? ?r?j??t?d ???h fl?w?. V?lu?t??n methods based on d????unt?d ???h fl?w m?d?l? determine ?t??k ?r???? ?n a different and m?r? r?bu?t way. DCF m?d?l? ??t?m?t? wh?t the ?nt?r? ??m??n? ?? worth. Comparing th?? ??t?m?t?, or "intrinsic v?lu?," w?th th? stock's ?urr?nt market price ?ll?w? f?r mu?h m?r? ?f ?n ???l??-t?-???l?? ??m??r???n. For ?x?m?l?, ?f you ??t?m?t? that a ?t??k ?? worth £20 b???d ?n a DCF model, and it is ?urr?ntl? trading ?t £10, you kn?w ?t'? undervalued. E?t?m?t?ng a stock's fair v?lu? ?r ?ntr?n??? v?lu? is n? ???? t??k. In f??t, ?t ?? ?u?t? ??m?l?x, ?nv?lv?ng ?ll k?nd? ?f variables th?t ?r? th?m??lv?? t?ugh t? ??t?m?t?. D????t? th??r complexity, v?lu?t??n? based ?n DCF m?d?l? ?r? mu?h m?r? fl?x?bl? th?n ?n? ?nd?v?du?l r?t??, and th?? ?ll?w an ?nv??t?r to ?n??r??r?t? ???um?t??n? ?b?ut ?u?h f??t?r? as a company's gr?wth ?r?????t?, wh?th?r its profit m?rg?n? ?r? l?k?l? to ?x??nd ?r ??ntr??t, ?nd h?w risky th? ??m??n? is ?n general.