Latest news with #fairvalue
Yahoo
12 hours ago
- Business
- Yahoo
Estimating The Intrinsic Value Of BLD Plantation Bhd. (KLSE:BLDPLNT)
The projected fair value for BLD Plantation Bhd is RM10.68 based on 2 Stage Free Cash Flow to Equity BLD Plantation Bhd's RM10.76 share price indicates it is trading at similar levels as its fair value estimate Industry average of 423% suggests BLD Plantation Bhd's peers are currently trading at a higher premium to fair value Does the June share price for BLD Plantation Bhd. (KLSE:BLDPLNT) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by projecting its future cash flows and then discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. There's really not all that much to it, even though it might appear quite complex. Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (MYR, Millions) RM80.1m RM68.1m RM61.7m RM58.3m RM56.7m RM56.2m RM56.5m RM57.3m RM58.5m RM60.0m Growth Rate Estimate Source Est @ -23.00% Est @ -15.01% Est @ -9.41% Est @ -5.50% Est @ -2.76% Est @ -0.84% Est @ 0.51% Est @ 1.45% Est @ 2.10% Est @ 2.57% Present Value (MYR, Millions) Discounted @ 8.4% RM73.9 RM58.0 RM48.5 RM42.2 RM37.9 RM34.7 RM32.2 RM30.1 RM28.4 RM26.8 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM413m We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (3.6%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.4%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = RM60m× (1 + 3.6%) ÷ (8.4%– 3.6%) = RM1.3b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= RM1.3b÷ ( 1 + 8.4%)10= RM586m The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is RM999m. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of RM10.8, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at BLD Plantation Bhd as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.4%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. Check out our latest analysis for BLD Plantation Bhd Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For BLD Plantation Bhd, we've put together three essential aspects you should consider: Risks: To that end, you should be aware of the 2 warning signs we've spotted with BLD Plantation Bhd . Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook! PS. Simply Wall St updates its DCF calculation for every Malaysian stock every day, so if you want to find the intrinsic value of any other stock just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
Yahoo
2 days ago
- Business
- Yahoo
A Look At The Intrinsic Value Of Shangri-La Hotels (Malaysia) Berhad (KLSE:SHANG)
Shangri-La Hotels (Malaysia) Berhad's estimated fair value is RM2.05 based on 2 Stage Free Cash Flow to Equity Current share price of RM1.66 suggests Shangri-La Hotels (Malaysia) Berhad is potentially trading close to its fair value Shangri-La Hotels (Malaysia) Berhad's peers seem to be trading at a lower discount to fair value based onthe industry average of 9.5% Does the June share price for Shangri-La Hotels (Malaysia) Berhad (KLSE:SHANG) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (MYR, Millions) RM79.8m RM78.1m RM77.7m RM78.3m RM79.6m RM81.3m RM83.5m RM86.0m RM88.7m RM91.6m Growth Rate Estimate Source Est @ -4.74% Est @ -2.22% Est @ -0.46% Est @ 0.77% Est @ 1.63% Est @ 2.23% Est @ 2.65% Est @ 2.95% Est @ 3.16% Est @ 3.30% Present Value (MYR, Millions) Discounted @ 11% RM71.7 RM63.1 RM56.4 RM51.1 RM46.7 RM42.9 RM39.6 RM36.6 RM34.0 RM31.5 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM474m The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (3.6%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 11%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = RM92m× (1 + 3.6%) ÷ (11%– 3.6%) = RM1.2b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= RM1.2b÷ ( 1 + 11%)10= RM429m The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is RM903m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of RM1.7, the company appears about fair value at a 19% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Shangri-La Hotels (Malaysia) Berhad as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 11%, which is based on a levered beta of 1.284. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. See our latest analysis for Shangri-La Hotels (Malaysia) Berhad Strength Earnings growth over the past year exceeded the industry. Debt is not viewed as a risk. Dividend is in the top 25% of dividend payers in the market. Weakness No major weaknesses identified for SHANG. Opportunity Current share price is below our estimate of fair value. Lack of analyst coverage makes it difficult to determine SHANG's earnings prospects. Threat Dividends are not covered by earnings. Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For Shangri-La Hotels (Malaysia) Berhad, we've compiled three important elements you should look at: Risks: For instance, we've identified 1 warning sign for Shangri-La Hotels (Malaysia) Berhad that you should be aware of. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! Other Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of! PS. Simply Wall St updates its DCF calculation for every Malaysian stock every day, so if you want to find the intrinsic value of any other stock just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
3 days ago
- Business
- Yahoo
A Look At The Intrinsic Value Of Edelteq Holdings Berhad (KLSE:EDELTEQ)
Edelteq Holdings Berhad's estimated fair value is RM0.20 based on 2 Stage Free Cash Flow to Equity Current share price of RM0.23 suggests Edelteq Holdings Berhad is potentially trading close to its fair value Edelteq Holdings Berhad's peers seem to be trading at a higher premium to fair value based onthe industry average of -224% In this article we are going to estimate the intrinsic value of Edelteq Holdings Berhad (KLSE:EDELTEQ) by taking the forecast future cash flows of the company and discounting them back to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (MYR, Millions) RM7.12m RM8.30m RM9.36m RM10.3m RM11.1m RM11.9m RM12.6m RM13.2m RM13.8m RM14.4m Growth Rate Estimate Source Est @ 22.14% Est @ 16.59% Est @ 12.71% Est @ 9.99% Est @ 8.08% Est @ 6.75% Est @ 5.82% Est @ 5.16% Est @ 4.71% Est @ 4.39% Present Value (MYR, Millions) Discounted @ 13% RM6.3 RM6.5 RM6.5 RM6.4 RM6.1 RM5.8 RM5.5 RM5.1 RM4.7 RM4.4 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM57m After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (3.6%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 13%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = RM14m× (1 + 3.6%) ÷ (13%– 3.6%) = RM166m Present Value of Terminal Value (PVTV)= TV / (1 + r)10= RM166m÷ ( 1 + 13%)10= RM50m The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is RM108m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of RM0.2, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Edelteq Holdings Berhad as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 13%, which is based on a levered beta of 1.522. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. Check out our latest analysis for Edelteq Holdings Berhad Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For Edelteq Holdings Berhad, we've put together three fundamental factors you should look at: Risks: For example, we've discovered 4 warning signs for Edelteq Holdings Berhad (2 shouldn't be ignored!) that you should be aware of before investing here. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the KLSE every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
4 days ago
- Business
- Yahoo
Calculating The Intrinsic Value Of Chocoladefabriken Lindt & Sprüngli AG (VTX:LISN)
Chocoladefabriken Lindt & Sprüngli's estimated fair value is CHF114,712 based on 2 Stage Free Cash Flow to Equity Chocoladefabriken Lindt & Sprüngli's CHF131,000 share price indicates it is trading at similar levels as its fair value estimate Our fair value estimate is similar to Chocoladefabriken Lindt & Sprüngli's analyst price target of CHF115,086 How far off is Chocoladefabriken Lindt & Sprüngli AG (VTX:LISN) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow. Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (CHF, Millions) CHF616.4m CHF732.8m CHF764.6m CHF838.0m CHF886.0m CHF918.9m CHF944.0m CHF963.2m CHF978.1m CHF989.9m Growth Rate Estimate Source Analyst x9 Analyst x8 Analyst x8 Analyst x1 Analyst x1 Est @ 3.71% Est @ 2.73% Est @ 2.03% Est @ 1.55% Est @ 1.21% Present Value (CHF, Millions) Discounted @ 3.9% CHF593 CHF679 CHF682 CHF720 CHF732 CHF731 CHF723 CHF710 CHF694 CHF676 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CHF6.9b The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (0.4%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 3.9%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = CHF990m× (1 + 0.4%) ÷ (3.9%– 0.4%) = CHF29b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CHF29b÷ ( 1 + 3.9%)10= CHF20b The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is CHF27b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of CHF131k, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Chocoladefabriken Lindt & Sprüngli as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 3.9%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. Check out our latest analysis for Chocoladefabriken Lindt & Sprüngli Strength Earnings growth over the past year exceeded the industry. Debt is not viewed as a risk. Dividends are covered by earnings and cash flows. Weakness Earnings growth over the past year is below its 5-year average. Dividend is low compared to the top 25% of dividend payers in the Food market. Expensive based on P/E ratio and estimated fair value. Opportunity Annual revenue is forecast to grow faster than the Swiss market. Threat Annual earnings are forecast to grow slower than the Swiss market. Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Chocoladefabriken Lindt & Sprüngli, there are three essential factors you should explore: Financial Health: Does LISN have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk. Future Earnings: How does LISN's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SWX every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Yahoo
6 days ago
- Business
- Yahoo
A Look At The Fair Value Of Snowflake Inc. (NYSE:SNOW)
Snowflake's estimated fair value is US$229 based on 2 Stage Free Cash Flow to Equity With US$208 share price, Snowflake appears to be trading close to its estimated fair value The US$227 analyst price target for SNOW is 1.0% less than our estimate of fair value Does the June share price for Snowflake Inc. (NYSE:SNOW) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. There's really not all that much to it, even though it might appear quite complex. We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF ($, Millions) US$902.4m US$1.09b US$1.42b US$1.97b US$2.79b US$3.74b US$4.48b US$5.13b US$5.70b US$6.19b Growth Rate Estimate Source Analyst x22 Analyst x23 Analyst x22 Analyst x7 Analyst x4 Analyst x4 Est @ 19.61% Est @ 14.61% Est @ 11.11% Est @ 8.66% Present Value ($, Millions) Discounted @ 8.1% US$835 US$937 US$1.1k US$1.4k US$1.9k US$2.3k US$2.6k US$2.8k US$2.8k US$2.8k ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$20b We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.9%. We discount the terminal cash flows to today's value at a cost of equity of 8.1%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$6.2b× (1 + 2.9%) ÷ (8.1%– 2.9%) = US$124b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$124b÷ ( 1 + 8.1%)10= US$57b The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$77b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of US$208, the company appears about fair value at a 9.3% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Snowflake as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.1%, which is based on a levered beta of 1.188. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. Check out our latest analysis for Snowflake Strength Debt is not viewed as a risk. Weakness No major weaknesses identified for SNOW. Opportunity Forecast to reduce losses next year. Has sufficient cash runway for more than 3 years based on current free cash flows. Current share price is below our estimate of fair value. Threat Not expected to become profitable over the next 3 years. Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Snowflake, there are three additional items you should assess: Risks: For instance, we've identified 2 warning signs for Snowflake that you should be aware of. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for SNOW's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
