Quite often hear people bad-mouthing dcf’s, but really this needs separating into its component parts. To me, the theoretical framework is something that no analyst can do without (it IS valuation). The practical application is different, with inputs often manipulated to justify pre-conceived valuations.
I saw the comment below today and think it captures it well. It reminds me of a superb fund manager, extremely well qualified and trained, who once, when talking about the then trend for EVA analysis, said ‘what’s wrong with a P/E‘, meaning that if you know your stuff (what is the income recognition policy, growth, cash conversion, moat/RoI/margin etc.), you should pretty be able to work back from a P/E … .
This puts it better than me:
‘… just like DCFs (which is a tool Buffett is skeptical of in practice, despite agreeing with the general method in principle), Buffett and Munger essentially do the cost of capital calculation in their head. They implicitly use and understand both DCFs and cost of capital calculations even if they don’t explicitly label them …‘
Thoughts On Cost Of Capital And Buffett’s $1 Test – Part 1; John Huber; Value, long-term horizon, special situations, Saber Capital management https://seekingalpha.com/article/4118943-thoughts-cost-capital-buffetts-1-test-part-1