Using the 2 Stage Free Cash Flow to Equity, Cellebrite DI fair value estimate is US$15.17
With US$18.06 share price, Cellebrite DI appears to be trading close to its estimated fair value
Our fair value estimate is 21% lower than Cellebrite DI's analyst price target of US$19.14
Today we will run through one way of estimating the intrinsic value of Cellebrite DI Ltd. (NASDAQ:CLBT) by projecting its future cash flows and then discounting them to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Believe it or not, it's not too difficult to follow, as you'll see from our example!
We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
The Model
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) estimate
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$126.0m
US$146.0m
US$160.9m
US$173.7m
US$184.6m
US$194.1m
US$202.5m
US$210.2m
US$217.4m
US$224.2m
Growth Rate Estimate Source
Analyst x1
Analyst x1
Est @ 10.23%
Est @ 7.91%
Est @ 6.29%
Est @ 5.15%
Est @ 4.36%
Est @ 3.80%
Est @ 3.41%
Est @ 3.14%
Present Value ($, Millions) Discounted @ 7.7%
US$117
US$126
US$129
US$129
US$127
US$124
US$120
US$116
US$111
US$107
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$1.2b
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 (2.5%) 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 7.7%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$4.4b÷ ( 1 + 7.7%)10= US$2.1b
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$3.3b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of US$18.1, the company appears around fair value at the time of writing. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.
Important Assumptions
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 Cellebrite DI 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 7.7%, which is based on a levered beta of 1.011. 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.
SWOT Analysis for Cellebrite DI
Strength
Currently debt free.
Balance sheet summary for CLBT.
Weakness
Expensive based on P/S ratio and estimated fair value.
Shareholders have been diluted in the past year.
Opportunity
Forecast to reduce losses next year.
Has sufficient cash runway for more than 3 years based on current free cash flows.
Threat
Total liabilities exceed total assets, which raises the risk of financial distress.
Is CLBT well equipped to handle threats?
Looking Ahead:
Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Cellebrite DI, we've compiled three further factors you should explore:
Risks: To that end, you should be aware of the 2 warning signs we've spotted with Cellebrite DI .
Future Earnings: How does CLBT'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 NASDAQGS 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) simplywallst.com. This 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.
主要见解
利用两阶段自由现金流向股本,Cellebrite DI的公允价值估计为15.17美元
以18.06美元的股价看,Cellebrite DI似乎接近其估算的公允价值
我们的公允价值估计比Cellebrite DI的分析师价格目标19.14美元低21%
今天我们将通过一种估计Cellebrite DI Ltd.(纳斯达克:CLBT)内在价值的方法来运行,即通过预测其未来现金流,并将其贴现为今天的价值。实现这一目标的一种方法是采用贴现现金流(DCF)模型。信不信由你,跟随我们的例子,你会发现这并不难!