Using the 2 Stage Free Cash Flow to Equity, Academy Sports and Outdoors fair value estimate is US$78.15
Academy Sports and Outdoors' US$54.64 share price signals that it might be 30% undervalued
Analyst price target for ASO is US$63.06 which is 19% below our fair value estimate
Does the August share price for Academy Sports and Outdoors, Inc. (NASDAQ:ASO) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by projecting its future cash flows and then discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.
The Model
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) forecast
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$346.5m
US$387.9m
US$404.6m
US$324.0m
US$323.3m
US$325.2m
US$329.0m
US$334.1m
US$340.3m
US$347.2m
Growth Rate Estimate Source
Analyst x7
Analyst x6
Analyst x3
Analyst x1
Est @ -0.23%
Est @ 0.59%
Est @ 1.16%
Est @ 1.57%
Est @ 1.85%
Est @ 2.04%
Present Value ($, Millions) Discounted @ 7.7%
US$322
US$334
US$324
US$241
US$223
US$208
US$196
US$185
US$175
US$165
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$2.4b
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$6.9b÷ ( 1 + 7.7%)10= US$3.3b
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$5.6b. 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$54.6, the company appears quite undervalued at a 30% 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
The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the 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 Academy Sports and Outdoors 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 1.261. 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 Academy Sports and Outdoors
Strength
Debt is not viewed as a risk.
Dividends are covered by earnings and cash flows.
Dividend information for ASO.
Weakness
Earnings declined over the past year.
Dividend is low compared to the top 25% of dividend payers in the Specialty Retail market.
Opportunity
Annual earnings are forecast to grow for the next 3 years.
Good value based on P/E ratio and estimated fair value.
Threat
Annual earnings are forecast to grow slower than the American market.
What else are analysts forecasting for ASO?
Moving On:
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. 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. Can we work out why the company is trading at a discount to intrinsic value? For Academy Sports and Outdoors, we've compiled three fundamental aspects you should consider:
Financial Health: Does ASO 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 ASO'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. 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.
主要見解
使用兩階段自由現金流量對Academy Sports and Outdoors的公平值估計爲78.15美元。
Academy Sports and Outdoors的54.64美元股價表明其可能被低估了30%。
ASO的分析師目標價爲63.06美元,比我們的公平估值低19%。
Academy Sports and Outdoors, Inc.(納斯達克:ASO)的8月份股價是否反映了它的真正價值?今天,我們將通過預測其未來現金流,然後以今天的價值折現來估算該股票的內在價值。 我們將應用折現現金流(DCF)模型來完成此操作。在您認爲自己無法理解它之前,請繼續閱讀!實際上,它比您想象的要簡單得多。
我們普遍認爲一家公司的價值是其未來所產生的現金的現值總和。然而,DCF僅是衆多估值指標之一,並且並不是不帶缺陷。如果您想了解更多關於折現現金流的信息,可以在 Simply Wall St 分析模型中詳細閱讀其背後的理論。
上述計算非常依賴於兩個假設。第一個是折現率,另一個是現金流。投資的一部分就是對公司未來表現的自我評估,因此請自行嘗試計算並檢查自己的假設。DCF還不考慮行業可能的週期性,或者公司未來的資本需求,因此它不能完全反映公司的潛在業績。鑑於我們將Academy Sports and Outdoors作爲潛在的股東,因此使用了權益成本作爲折現率,而不是考慮債務的資本成本(或加權平均資本成本,WACC)。在此計算中,我們使用了7.7%,該值基於1.261的槓桿貝塔。貝塔是一種股票波動率的度量,與整個市場相比進行比較。我們從與全球可比公司的平均貝塔值獲得我們的貝塔值,強制限制在0.8和2.0之間,這是一個穩定業務的合理範圍。
Academy Sports and Outdoors的SWOT分析
優勢
債務不被視爲風險。
分紅派息由收入和現金流決定。
ASO的股息信息。
弱點
過去一年的收益下降了。
與專業零售市場前25%支付股息股息低相比。
機會
預計未來3年的年度收益將增長。
基於市盈率和預估公平價值,出現良好的價值。
威脅
預計年度收益增長速度將慢於美國市場。
分析師對ASO還有什麼其他預測?
接下來:
估值只是構建投資論點的一個方面,在研究公司時不應僅看重這一指標。DCF模型並不是一個完美的股票估值工具。最好應用不同情況和假設,看看它們如何影響公司的估值。如果公司以不同的速度增長,或者如果其權益成本或無風險利率急劇變化,則結果可能截然不同。我們能否推斷出該公司爲什麼以內在價值低於折扣率在交易?對於Academy Sports and Outdoors,我們編制了三個基本方面,您應該考慮它們: