Using the 2 Stage Free Cash Flow to Equity, LifeStance Health Group fair value estimate is US$6.61
LifeStance Health Group's US$6.05 share price indicates it is trading at similar levels as its fair value estimate
Our fair value estimate is 25% lower than LifeStance Health Group's analyst price target of US$8.79
How far off is LifeStance Health Group, Inc. (NASDAQ:LFST) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.
Step By Step Through The Calculation
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) estimate
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF ($, Millions)
US$10.6m
US$39.0m
US$57.0m
US$71.2m
US$84.0m
US$95.3m
US$104.8m
US$112.9m
US$119.8m
US$125.7m
Growth Rate Estimate Source
Analyst x3
Analyst x3
Analyst x1
Est @ 24.85%
Est @ 18.09%
Est @ 13.35%
Est @ 10.03%
Est @ 7.71%
Est @ 6.08%
Est @ 4.94%
Present Value ($, Millions) Discounted @ 6.0%
US$10.0
US$34.7
US$47.9
US$56.4
US$62.9
US$67.3
US$69.8
US$71.0
US$71.1
US$70.4
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$561m
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 (2.3%) 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 6.0%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$3.5b÷ ( 1 + 6.0%)10= US$2.0b
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$2.5b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$6.1, the company appears about fair value at a 8.5% discount to where the stock price trades currently. 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.
The 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 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 6.0%, 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.
Current share price is below our estimate of fair value.
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?
Next Steps:
Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. 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 example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For LifeStance Health Group, we've compiled three relevant items you should further research:
Risks: Be aware that LifeStance Health Group is showing 3 warning signs in our investment analysis , you should know about...
Future Earnings: How does LFST'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. 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.
關鍵見解
使用兩階段自由現金流股權,LifeStance Health Group的公允價值估計爲6.61美元
LifeStance Health Group的6.05美元股價表明其交易價格與其公允價值估計相似
我們的公允價值估計比LifeStance Health Group的分析師目標股價8.79美元低25%
LifeStance Health Group, Inc.(納斯達克股票代碼:LFST)距離其內在價值有多遠?使用最新的財務數據,我們將通過預測未來的現金流,然後將其折現爲今天的價值,來研究股票的定價是否合理。折扣現金流(DCF)模型是我們將應用的工具。像這樣的模型可能看起來超出外行人的理解,但它們很容易理解。
我們要提醒的是,對公司進行估值的方法有很多,就像DCF一樣,每種技術在某些情況下都有優點和缺點。如果你對這種估值還有一些迫切的問題,可以看看 Simply Wall St 分析模型。
現在,貼現現金流的最重要輸入是貼現率,當然還有實際現金流。投資的一部分是自己對公司未來業績的評估,因此請自己嘗試計算並檢查自己的假設。DCF也沒有考慮一個行業可能的週期性,也沒有考慮公司未來的資本需求,因此它沒有全面反映公司的潛在表現。鑑於我們將LifeStance Health Group視爲潛在股東,因此使用權益成本作爲貼現率,而不是構成債務的資本成本(或加權平均資本成本,WACC)。在此計算中,我們使用了6.0%,這是基於0.800的槓桿測試版。Beta是衡量股票與整個市場相比波動性的指標。我們的測試版來自全球可比公司的行業平均貝塔值,設定在0.8到2.0之間,這是一個穩定的業務的合理範圍。
LifeStance 健康小組的 SWOT 分析
力量
債務可以很好地由收益支付。
LFST 的資產負債表摘要。
弱點
未發現 LFST 的主要弱點。
機會
預計明年將減少損失。
目前的股價低於我們對公允價值的估計。
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,現金流不足 3 年。
預計在未來三年內不會盈利。
LFST 有足夠的能力應對威脅嗎?
後續步驟:
儘管公司的估值很重要,但它只是公司需要評估的衆多因素之一。DCF模型並不是投資估值的萬能藥。相反,DCF模型的最佳用途是測試某些假設和理論,看看它們是否會導致公司被低估或高估。例如,公司權益成本或無風險利率的變化會對估值產生重大影響。對於LifeStance Health Group,我們整理了三個值得進一步研究的相關項目:
風險:請注意,LifeStance Health Group在我們的投資分析中顯示了3個警告信號,你應該知道...