Stock DCF Valuation Calculator
Estimates the intrinsic value of a stock by discounting projected free cash flows back to today's dollars. Use it when deciding whether a stock is overvalued or undervalued relative to its fundamentals.
About this calculator
Discounted Cash Flow (DCF) valuation projects a company's future free cash flow and discounts it back to a present value using a required rate of return (WACC). The terminal value — representing all cash flows beyond the projection horizon — is calculated using the Gordon Growth Model: Terminal Value = FCF × (1 + g)^5 / (WACC − g), where g is the terminal growth rate. This terminal value is then divided by shares outstanding to arrive at a per-share intrinsic value. If the intrinsic value exceeds the current market price, the stock may be undervalued. WACC (Weighted Average Cost of Capital) reflects the blended cost of equity and debt financing, and is the most sensitive input in the model. Small changes in discount rate or growth assumptions can dramatically alter the output.
How to use
Assume: Current FCF = $500M, Annual Growth Rate = 10%, Discount Rate (WACC) = 8%, Terminal Growth Rate = 3%, Shares Outstanding = 100M. Step 1 — FCF in year 5: $500M × (1 + 0.10)^5 = $805.26M. Step 2 — Terminal Value: $805.26M / (0.08 − 0.03) = $16,105M. Step 3 — Intrinsic Value per share: $16,105M / 100M shares = $161.05. If the stock trades at $130, it appears undervalued by roughly $31 per share based on these assumptions.
Frequently asked questions
What discount rate should I use in a DCF stock valuation?
The discount rate should reflect the risk of the investment, typically approximated by WACC for the company being analyzed. For large-cap US stocks, WACC commonly falls between 7% and 12%. Higher-risk or small-cap companies warrant higher discount rates, often 12–15%. Using a rate that is too low overstates intrinsic value, so it is prudent to run a sensitivity analysis with multiple discount rate scenarios before drawing conclusions.
How does terminal growth rate affect DCF intrinsic value calculations?
The terminal growth rate has an outsized effect because it drives the terminal value, which often accounts for 60–80% of the total DCF result. Even a 0.5% change in this assumption can move intrinsic value by 10–20%. The terminal growth rate should never exceed the long-run GDP growth rate of the economy — typically 2–3% for mature businesses. Using an overly optimistic terminal growth rate is one of the most common errors in amateur DCF models.
When is the DCF valuation method most and least reliable?
DCF works best for companies with predictable, positive free cash flows — such as utilities, consumer staples, or mature technology firms. It is less reliable for early-stage companies with negative or highly volatile cash flows, because small forecast errors compound dramatically over a multi-year projection. The model is also sensitive to macroeconomic assumptions like interest rates. Analysts typically pair DCF with comparable company multiples (EV/EBITDA, P/E) to cross-check the result.