The projected fair value for Procore Technologies is US$103 based on 2 Stage Free Cash Flow to Equity
Procore Technologies is estimated to be 31% undervalued based on current share price of US$70.61
The US$66.68 analyst price target for PCOR is 35% less than our estimate of fair value
Does the November share price for Procore Technologies, Inc. (NYSE:PCOR) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Don't get put off by the jargon, the math behind it is actually quite straightforward.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.
Step By Step Through The Calculation
We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) forecast
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$173.5m
US$247.4m
US$380.0m
US$503.9m
US$598.6m
US$682.1m
US$754.1m
US$815.7m
US$868.8m
US$915.2m
Growth Rate Estimate Source
Analyst x15
Analyst x11
Analyst x1
Analyst x1
Est @ 18.80%
Est @ 13.95%
Est @ 10.55%
Est @ 8.17%
Est @ 6.51%
Est @ 5.34%
Present Value ($, Millions) Discounted @ 6.9%
US$162
US$217
US$311
US$386
US$430
US$458
US$474
US$480
US$478
US$471
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$3.9b
The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.6%. We discount the terminal cash flows to today's value at a cost of equity of 6.9%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$22b÷ ( 1 + 6.9%)10= US$11b
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$15b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$70.6, the company appears quite good value at a 31% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.
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 Procore Technologies 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 6.9%, which is based on a levered beta of 1.029. 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 Procore Technologies
Strength
Currently debt free.
Balance sheet summary for PCOR.
Weakness
Shareholders have been diluted in the past year.
Opportunity
Has sufficient cash runway for more than 3 years based on current free cash flows.
Trading below our estimate of fair value by more than 20%.
Threat
Not expected to become profitable over the next 3 years.
What else are analysts forecasting for PCOR?
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. What is the reason for the share price sitting below the intrinsic value? For Procore Technologies, we've put together three relevant factors you should consider:
Risks: Take risks, for example - Procore Technologies has 3 warning signs we think you should be aware of.
Future Earnings: How does PCOR'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 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.
主要見解
Procore Technologies的預計公平價值爲103美元,基於兩階段自由現金流對股本
根據當前每股70.61美元的股價,估計Procore Technologies被低估了31%
PCOR的66.68美元分析師目標價比我們的公平價值估計低35%
十一月份Procore Technologies, Inc. (紐交所: PCOR) 的股價是否反映了其真實價值?今天,我們將通過對預期未來現金流進行貼現來估算該股票的內在價值。 這次我們將使用貼現現金流(DCF)模型。 不要被這些行話嚇到,其背後的數學實際上相當簡單。