How value shifts across WACC and growth
| WACC ↓ / Growth → | 1.5% | 2.0% | 2.5% | 3.0% |
|---|---|---|---|---|
| 8% | $95 | $105 | $118 | $135 |
| 9% | $78 | $85 | $93 | $103 |
| 10% | $65 | $70 | $76 | $83 |
| 11% | $55 | $59 | $63 | $68 |
When a narrow assumption means you are speculating
If your target price only works with a specific WACC and growth rate combination, you’re speculating, not investing. Look for companies where most of the sensitivity table shows upside — that’s a genuine margin of safety.
Probability-weighting bull, base, and bear cases
The best DCF analysts also run scenario analysis: What if the company loses its biggest customer? What if a new competitor enters? What if regulation changes? Assign probabilities and probability-weight the outcomes.
| Scenario | Probability | Value/Share | Weighted |
|---|---|---|---|
| Bull | 25% | $120 | $30 |
| Base | 50% | $80 | $40 |
| Bear | 25% | $45 | $11.25 |
| Expected | 100% | $81.25 |
Build your own sensitivity table
Build a simple sensitivity table for a company you’re analyzing. Vary WACC from 8–12% and terminal growth from 1.5–3%. How wide is the range?
Reading a wide valuation range against price
Your sensitivity table shows a range of $55–$135 per share. The stock trades at $70. Is this a buy?
Why the sensitivity table is the most honest part
Deciding when the price hugs the downside
Your DCF intrinsic value is $150/share. You ran sensitivity on WACC (±1%) and terminal growth (±0.5%). Range: $110-$210. Stock trades at $125. Decision?
Check your understanding
Sit with the ideas.
Your base case DCF gives a value of $120/share. Your bull case (lower WACC, higher growth) gives $180. Your bear case (higher WACC, lower growth) gives $75. The stock trades at $95. What is the most prudent conclusion?
Why: