What this is
Apply Tim's IRR Framework (20x through-cycle multiple, 12% after-tax IRR hurdle, ROIIC > 30% on growth capex) in reverse. For each name, solve: at today's price, what compound annual growth rate is the market assuming the business achieves?
Why this matters
Most investors look at P/E ratios. Reverse-DCF shows the buried assumption: '40x forward earnings' translates to something like '28% FCF CAGR for 10 years.' If that implied rate sounds insane, the multiple is the symptom, not the diagnosis.
Names
- NVDA at current price
- PLTR at current price
- SHOP at current price
Status
Open. Readout due next Investing Show episode.
What this is
Apply Tim's IRR Framework (20x through-cycle multiple, 12% after-tax IRR hurdle, ROIIC > 30% on growth capex) in reverse. For each name, solve: at today's price, what compound annual growth rate is the market assuming the business achieves?
Why this matters
Most investors look at P/E ratios. Reverse-DCF shows the buried assumption: '40x forward earnings' translates to something like '28% FCF CAGR for 10 years.' If that implied rate sounds insane, the multiple is the symptom, not the diagnosis.
Names
Status
Open. Readout due next Investing Show episode.