Discounted Cash Flow, Margins, and valuing a company

As things have started to appear increasingly toppy - yet wanting to continue to allocate funds to my retirement at regular intervals - I’ve been viewing my Watchlist through the lens of Discounted Cash Flow Model (DCF).

One thing that strikes me is the DCF doesn’t account for margin. Sure two companies with equal DCF is simple, you choose the higher margin company, but assuming their DCFs diverge but one has, say, 10% better margins, what’s that worth to you to offset any difference in DCF?


I always had issues with DCF because they are based on assumptions based on assumptions and then on top of assumptions. Too many unknowns in those calculations that are guesses.

Here are my preferred valuation metrics using two stocks whos valuation are being actively debated
Screenshot 2024-03-04 at 8.56.31 AM

  1. Morningstar fair market value. Note - this is based on their DCF process and updated once a quarter based on the earnings report.
  2. Enterprise Value / Gross Profits. I prefer this to be less than 15
  3. (EV/GP) / forward growth rate. I want this to be less than 25
  4. Price/Next 12 months sales
  5. Price/Trailing 12 months sales

#4 and #5 are meant to compare with each other to understand the valuation trend.

As per these metrics, AAPL is expensive and NVDA not as much.


Now do SMCI! I kid, I kid…

Thanks, Beach. Appreciate the idea.

Any thoughts on how to interpret growth and revenue in the context of margins? A revenue growth rate of 30% is different for MNDY (gross margin 88.95%) vs. TSLA (18.25%). Perhaps a better comparison without crossing industry lines is comparing MNDY to, say, Salesform (CRM ), the latter with margins in the 73-75%.

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