The projected fair value for HubSpot is US$545 based on 2 Stage Free Cash Flow to Equity
HubSpot's US$487 share price indicates it is trading at similar levels as its fair value estimate
Our fair value estimate is 11% lower than HubSpot's analyst price target of US$615
How far off is HubSpot, Inc. (NYSE:HUBS) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the forecast future cash flows of the company and discounting them back to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.
Step By Step Through The Calculation
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) forecast
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$471.8m
US$601.7m
US$834.1m
US$992.6m
US$1.13b
US$1.25b
US$1.35b
US$1.44b
US$1.52b
US$1.59b
Growth Rate Estimate Source
Analyst x16
Analyst x5
Analyst x1
Est @ 19.01%
Est @ 14.06%
Est @ 10.59%
Est @ 8.16%
Est @ 6.46%
Est @ 5.27%
Est @ 4.44%
Present Value ($, Millions) Discounted @ 6.7%
US$442
US$529
US$687
US$767
US$820
US$850
US$862
US$861
US$849
US$832
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$7.5b
After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond 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 2.5%. We discount the terminal cash flows to today's value at a cost of equity of 6.7%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$39b÷ ( 1 + 6.7%)10= US$20b
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$28b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of US$487, the company appears about fair value at a 11% 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
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 HubSpot 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 6.7%, which is based on a levered beta of 1.011. 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 HubSpot
Strength
Debt is not viewed as a risk.
Balance sheet summary for HUBS.
Weakness
Shareholders have been diluted in the past year.
See HUBS' current ownership breakdown.
Opportunity
Forecast to reduce losses next year.
Has sufficient cash runway for more than 3 years based on current free cash flows.
Good value based on P/S ratio and estimated fair value.
Threat
No apparent threats visible for HUBS.
Next Steps:
Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. 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. For HubSpot, we've compiled three further factors you should consider:
Risks: Take risks, for example - HubSpot has 1 warning sign we think you should be aware of.
Future Earnings: How does HUBS'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
基於2階段自由現金流到權益的推測公允價值爲US$545的HubSpot
HubSpot的US$487股價表明它正以類似的水平交易
我們的公允價值估計比HubSpot的分析師目標價US$615低11%
HubSpot, Inc. (NYSE:HUBS)的內在價值相差多遠?根據最新的財務數據,我們將通過將公司預測未來現金流折現回今天的價值來判斷該股票是否定價合理。實現這一目標的一種方法是使用折現現金流模型(DCF)。在你認爲你無法理解的之前,繼續閱讀!它實際上比你想象的要簡單得多。