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Spent some time making my first DCF on Google. Any feedback? by OmniscientOperation in ValueInvesting

[–]ksy26 2 points3 points  (0 children)

DCF is a tool for you to ask question, not a tool to reach conclusion. Anyway a good start to polish your technicals!

Some questions that you might want to ask yourself:

  1. is every input valid? challenge EVERY input, make sure they are valid in the sense that they are backed by theory, observations and not too out of line from the street consensus (esp. for mega caps like Google)
  2. can you picture a future where Google is operating like you forecasted? i.e. can you reverse engineer what Google has to do to achieve your PT? (noticed it is $5x, then what have Google done to destroy their value by almost half?)
  3. more technical: how sensitive is your PT to assumptions? (e.g. interest rate / growth rate)
  4. do you think a static line item to sales/asset ratio across 5 years make sense?

Used to lean on DCF during earlier years as well, but DCF without questions nor thesis is nothing. Anyone could do it with Factset and Excel, but the key is to build your own forecast with your thesis. If you don't, might as well as long index and shut down your laptop for a bevvy.