As we know, there are four main valuation methods. For this case study we are going to use Earnings Per Share (EPS) for the stock valuation. The following are the case study assumptions:
Models Used:
Perpetuity (P): Can be used for initial and terminal values.
Gordon Growth (GG): Can be used for initial and terminal values, and Multiples.
Multiple Approach (M t+1): (EPS t+1): Calculate the Multiples using P/EPS, P and GG.
Also use 15x, 22x and 35x earnings as multiple sensitivities.
Discounted Cash Flow (DCF):
Calculate the Terminal Value (TV)
Assumptions:
Also, show the calculations for valuations utilizing the above methods:
Earnings Per Share (EPS): EPS (t=0) = $25.00
EPS Growth Rate: g going in = 7% g terminal = 3%
Expected Return (Discount Rate): E(r) going-in = 18% E(r) terminal = 20%
Proforma EPS Growth Rates:
g (t+1) = 15%, g (t+2) = 15%, g (t+3) = 14%, g (t+4) = 10%
Current Stock Price = $257.00
Three (3) Year Holding Period
What is Intrinsic Value of the Stock? Show the Intrinsic Valuation Weighted Average Calculations?
If you were asked to give three weighting scenarios (S1/S2/S3), what would they be? Why did you choose those weights, what are your arguments for the weights?
What is the premium of the final Intrinsic Value above the Current Stock Price? Is it with in a reasonable/probable range?
What are your trade recommendations? Stock? Small Cap Tech Stock Price ETF(s)? Small Cap Tech Stock Price Index(s)?
How many trades can you recommend to your clients and/or trading division?