About Our Intrinsic Value Calculation

At under-value stocks, we use a Discounted Cash Flow (DCF) model to estimate the intrinsic value of a company’s stock. This method helps investors understand what a stock is truly worth based on its financial performance.

Step 1: Collecting Key Financial Data

We start by analyzing essential financial metrics such as Free Cash Flow (FCF), Net Income, Total Debt, Cash & Cash Equivalents, and the number of Shares Outstanding. Historical Free Cash Flow data is especially important, as it allows us to measure the company’s growth over time.

Step 2: Calculating Growth Rate

Using historical FCF, we calculate the Compound Annual Growth Rate (CAGR). This gives us a dynamic view of how the company has grown in the past. If insufficient historical data is available, we apply a conservative default growth rate.

Step 3: Projecting Future Cash Flows

We forecast the company’s Free Cash Flow for the next few years, adjusting for the growth rate, and then discount each year’s projected cash flow back to the present using a rate that reflects the company’s risk.

Step 4: Determining Terminal Value

After the forecast period, we estimate a Terminal Value using the Gordon Growth Model. This model assumes the company will continue to grow at a stable rate indefinitely, giving a complete picture of future value.

Step 5: Calculating Enterprise and Equity Value

The Enterprise Value (EV) is the sum of all discounted future cash flows and the Terminal Value. To find the Equity Value, we subtract the company’s debt and add its cash and equivalents, showing the value available to shareholders.

Step 6: Intrinsic Value Per Share

Finally, we divide the Equity Value by the number of shares outstanding to determine the Intrinsic Value per Share, which gives a fair estimate of what one share is worth today.

Sector Comparison

We also compare companies with their peers in the same sector, allowing you to see not only a stock’s fair value but also how it performs relative to similar businesses.