In This Article:
Does the share price for Almirall SA. (BME:ALM) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after April 2018 then I highly recommend you check out the latest calculation for Almirall here.
What’s the value?
We are going to use a two-stage DCF 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 perpetual stable growth rate. To start off, I pulled together the analyst consensus forecast of ALM’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 8.81%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of €480.28M. Want to know how I calculated this value? Read our detailed analysis here.
Above is a visual representation of how ALM’s top and bottom lines are expected to move going forward, which should give you some color on ALM’s outlook. Now we need to calculate the terminal value, which is the business’s cash flow after the first stage. It’s appropriate to use the 10-year government bond rate of 2.8% as the perpetual growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes €1.10B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is €1.58B. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of €9.16, which, compared to the current share price of €9.475, we see that Almirall is fair value, maybe slightly overvalued and not available at a discount at this time.
Next Steps:
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.
For ALM, I’ve put together three important aspects you should look at:
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Financial Health: Does ALM 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.
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Future Earnings: How does ALM’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.
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Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of ALM? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!