DCF Modeling: Using Financial Modeling To Understand Whether A.I. is Overhyped or Not using Adobe As Prime Case Study
DCF Modeling Discussion: A Timeless Investor Education Piece for Members
Note to readers: This piece is exceptionally valuable to folks who are Fundamental Analysts and Investors. For such folks, I would seriously suggest that you join our Community to learn this methodology and apply it in your own investing. The entry to join is de minimus relative to the benefit you gain from this piece. This note will make all of my members more advanced fundamental analysts/investors, and therefore give them an intense edge compared to many other market participants. Do everything you can to give yourself an edge.
2H 2023 won’t be as easy as 1H 2023.
This is the same methodology that allowed me to understand that BABA at 120/share earlier in 2022 represented a key level to reduce exposure while a re-entry in the low 80 region had a fundamentally supported case.
Members,
Much of this year’s market advance (no surprise at this point) is driven by the A.I. hype from companies such as Nvidia, AMD, Adobe, Broadcom and Apple (to name a few).
But are most investors actually doing financial modeling to understand whether this hype is justified? Or are they buying blindly?
In this research note, I will discuss my findings after doing a personal Discounted Cash Flow (DCF) Model on Adobe (ADBE).
Wall Street Analysts typically use DCF Models to assess the intrinsic value of a stock in their scenario analysis.
This note is not designed to teach all that one needs to know about creating a DCF Model - that is perhaps the subject for potentially a separate course in the future given the intense level of background information to put a model together.
What this note will do is conclude the following:
Understand 3 of the most valuable inputs in a DCF Model that I personally look for (there are many important inputs - but these are my top 3 subjective inputs when it comes to looking at tech companies).
For Fundamental Analysts/Investors, to share scenario analysis of Adobe stock price outcomes depending on various business outcomes
For followers of A.I. stocks, to understand whether Wall Street has pushed these names to unreasonable levels or whether these levels still make sense
Understand where the pullback levels may present an opportunity for Adobe shares and what region represents the stock trading at zones where retracements are fundamentally likely.
In other words, I am sharing my observations to help our Community members understand at what regions will represent levels where Adobe has margin of safety (which increases the power of Support levels). And at the same time, understand what levels are considered speculative and make Resistance levels more likely to pressure the stock.
For Investors, looking at Support and Resistance levels is NOT as effective if you haven’t put in the work to assess the intrinsic value of the company.
Every time I make a guidance opinion, I’ve already done the DCF work in the background.
Everything is written from a standpoint assuming the reader has never heard of a DCF model before and should be understand by all.
This note will be most appreciated by Members in my community who deeply enjoy fundamental analysis discussion and applying that analysis to finding key levels for stocks.