The MSCI example contains a point worth stating outright: the reverse DCF is solving for free cash flow per share, not free cash flow, so a company retiring stock can meet the implied rate with slower business growth. That makes the buyback a real part of the forecast, and also the assumption most exposed to a change of mind by management, since repurchases can be paused in a way that revenue cannot. Checking whether the implied growth still works with the share count held flat is a quick way to see how much of the case rests on it.
I can’t believe I only now stumbled upon your Substack account Dave. Great to connect!
Hey Rene, welcome to the show lol. I have been enjoying your work for some time here, keep up the great analysis!
And you too Sir! 😜
The MSCI example contains a point worth stating outright: the reverse DCF is solving for free cash flow per share, not free cash flow, so a company retiring stock can meet the implied rate with slower business growth. That makes the buyback a real part of the forecast, and also the assumption most exposed to a change of mind by management, since repurchases can be paused in a way that revenue cannot. Checking whether the implied growth still works with the share count held flat is a quick way to see how much of the case rests on it.