The projected fair value for LifeStance Health Group is US$8.70 based on 2 Stage Free Cash Flow to Equity
Current share price of US$5.33 suggests LifeStance Health Group is potentially 39% undervalued
Analyst price target for LFST is US$8.50 which is 2.3% below our fair value estimate
Today we'll do a simple run through of a valuation method used to estimate the attractiveness of LifeStance Health Group, Inc. (NASDAQ:LFST) as an investment opportunity by estimating the company's future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
What's The Estimated Valuation?
We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) estimate
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$40.0m
US$63.0m
US$81.6m
US$99.0m
US$114.5m
US$127.9m
US$139.3m
US$148.9m
US$157.2m
US$164.5m
Growth Rate Estimate Source
Analyst x3
Analyst x1
Est @ 29.50%
Est @ 21.36%
Est @ 15.67%
Est @ 11.68%
Est @ 8.89%
Est @ 6.94%
Est @ 5.57%
Est @ 4.61%
Present Value ($, Millions) Discounted @ 6.1%
US$37.7
US$56.0
US$68.4
US$78.2
US$85.3
US$89.9
US$92.3
US$93.0
US$92.6
US$91.3
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$785m
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 (2.4%) 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 6.1%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$4.6b÷ ( 1 + 6.1%)10= US$2.5b
The total value, or equity value, is then the sum of the present value of the future cash flows, 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$5.3, the company appears quite undervalued at a 39% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
Important Assumptions
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 LifeStance Health Group 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 6.1%, 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.
SWOT Analysis for LifeStance Health Group
Strength
Debt is well covered by earnings.
Balance sheet summary for LFST.
Weakness
No major weaknesses identified for LFST.
Opportunity
Forecast to reduce losses next year.
Trading below our estimate of fair value by more than 20%.
Threat
Debt is not well covered by operating cash flow.
Has less than 3 years of cash runway based on current free cash flow.
Not expected to become profitable over the next 3 years.
Is LFST well equipped to handle threats?
Moving On:
Although the valuation of a company is important, it 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. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Why is the intrinsic value higher than the current share price? For LifeStance Health Group, there are three additional elements you should further research:
Risks: We feel that you should assess the 2 warning signs for LifeStance Health Group we've flagged before making an investment in the company.
Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for LFST'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) 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
主要見解
基於兩階段自由現金流向股東權益的預測公允價值爲8.70美元的LifeStance Health Group。
當前的股價爲5.33美元,表明LifeStance Health Group有潛力被低估39%。
分析師的股價目標爲8.50美元,比我們的公允價值預估低2.3%。
今天,我們將通過估算公司未來現金流並將其貼現到現值的方式,對LifeStance Health Group,Inc.(NASDAQ:LFST)這個投資機會的吸引力進行簡單的估值方法運行示例。其中一種方法是採用貼現現金流模型(DCF)。儘管這類模型似乎超出了普通人的理解範圍,但它們還是相當易於理解的。
我們要指出,折現現金流最重要的輸入是折現率和實際現金流。投資的一部分是爲公司未來的表現進行自己的評估,所以嘗試這種計算,並檢查您自己的假設。DCF模型還不考慮可能發生的行業循環性或公司未來的資本需求,因此並不能完全了解公司的潛在表現。鑑於我們正在研究LifeStance Health Group作爲潛在股東,股權成本被用作折現率,而不是資本成本(或加權平均資本成本,WACC)來考慮債務。我們在此計算中使用了6.1%的成本,該成本基於0.800的槓桿貝塔。貝塔是衡量股票波動性的指標,與整個市場相比。我們從全球可比公司的行業平均貝塔值中獲得我們的貝塔值,其標準限制在0.8和2.0之間,這是一個穩定業務的合理範圍。
LifeStance Health Group的SWOt分析
優勢
債務被收益覆蓋良好。
LFSt資產負債表摘要。
弱勢
LFSt沒有發現重大弱點。
機會
預計明年減少虧損。
低於我們估價的20%以上。
威脅
運營現金流無法很好地覆蓋債務。
根據當前的自由現金流,現金儲備期少於3年。
未來3年內不會盈利。
LFSt是否已具備處理威脅的良好裝備?
接下來:
雖然公司的估值很重要,但在研究一家公司時,它不應是僅有的衡量標準。DCF模型不是投資估值的全部和結束。相反,應將其視爲“股票的估值偏高/偏低需要滿足什麼假設?”的指南。例如,如果終端價值增長率略作調整,就可能會極大地改變總體結果。爲什麼內在價值高於當前股價?對於LifeStance Health Group,您還應該進一步研究以下三個因素:
風險:我們認爲,在投資該公司之前,您應該評估我們之前標記的LifeStance Health Group的兩個警示標誌。