Is Apogee Enterprises, Inc. (NASDAQ:APOG) trading at a 49% discount?
Today we are going to do a simple overview of a valuation method used to estimate the attractiveness of Apogee Enterprises, Inc. (NASDAQ:APOG) as an investment opportunity by taking the flows expected future cash flows and discounting them to their present value. This will be done using the discounted cash flow (DCF) model. This may sound complicated, but it’s actually quite simple!
We draw your attention to the fact that there are many ways to value a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you want to know more about discounted cash flow, the rationale for this calculation can be read in detail in the Simply Wall St analysis template.
See our latest analysis for Apogee Enterprises
The model
We use the 2stage growth model, which simply means that we consider two stages of business growth. In the initial period, the company may have a higher growth rate, and the second stage is generally assumed to have a stable growth rate. To begin with, we need to obtain cash flow estimates for the next ten years. Wherever possible, we use analysts’ estimates, but where these are not available, we extrapolate the previous free cash flow (FCF) from the latest estimate or reported value. We assume that companies with decreasing free cash flow will slow their rate of contraction and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow more in early years than in later years.
A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so we discount the value of these future cash flows to their estimated value in today’s dollars:
Estimated free cash flow (FCF) over 10 years
2023 
2024 
2025 
2026 
2027 
2028 
2029 
2030 
2031 
2032 

Leveraged FCF ($, millions) 
$40.6 million 
$95.3 million 
$96.9 million 
$98.6 million 
$100.4 million 
$102.3 million 
$104.2 million 
$106.2 million 
$108.2 million 
$110.3 million 
Growth rate estimate Source 
Analyst x2 
Analyst x2 
Is at 1.7% 
Is at 1.77% 
Is at 1.82% 
Is at 1.86% 
Is at 1.88% 
Is at 1.9% 
Is at 1.91% 
Is at 1.92% 
Present value (millions of dollars) discounted at 7.1% 
$37.9 
$83.0 
$78.8 
$74.9 
$71.1 
$67.6 
$64.3 
$61.2 
$58.2 
$55.3 
(“East” = FCF growth rate estimated by Simply Wall St)
10year discounted cash flow (PVCF) = $652 million
We now need to calculate the terminal value, which represents all future cash flows after this tenyear period. For a number of reasons, a very conservative growth rate is used which cannot exceed that of a country’s GDP growth. In this case, we used the 5year average of the 10year government bond yield (1.9%) to estimate future growth. Similar to the 10year “growth” period, we discount future cash flows to present value, using a cost of equity of 7.1%.
Terminal value (TV)= FCF_{2032} × (1 + g) ÷ (r – g) = US$110 million × (1 + 1.9%) ÷ (7.1%–1.9%) = US$2.2 billion
Present value of terminal value (PVTV)= TV / (1 + r)^{ten}= $2.2 billion ÷ (1 + 7.1%)^{ten}= US$1.1 billion
The total value is the sum of the cash flows for the next ten years plus the present terminal value, which gives the total equity value, which in this case is $1.7 billion. In the last step, we divide the equity value by the number of shares outstanding. Compared to the current share price of $39.7, the company appears to be good value at a 49% discount to the current share price. The assumptions of any calculation have a big impact on the valuation, so it’s best to consider this as a rough estimate, not accurate down to the last penny.
The hypotheses
Now, the most important inputs to a discounted cash flow are the discount rate and, of course, the actual cash flows. You don’t have to agree with these entries, I recommend you redo the calculations yourself and play around with them. The DCF also does not take into account the possible cyclicality of an industry or the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we consider Apogee Enterprises 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 takes debt into account. In this calculation, we used 7.1%, which is based on a leveraged beta of 1.227. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.
Let’s move on :
While important, the DCF calculation will ideally not be the only piece of analysis you look at for a business. The DCF model is not a perfect stock valuation tool. Rather, it should be seen as a guide to “what assumptions must be true for this stock to be under/overvalued?” For example, changes in the company’s cost of equity or the riskfree rate can have a significant impact on the valuation. Why is the stock price below intrinsic value? For Apogee Enterprises, we’ve compiled three essentials you should check out:

Risks: For example, we spotted 5 warning signs for Apogee Enterprises you should be aware.

Future earnings: How does APOG’s growth rate compare to its peers and the market in general? Dive deeper into the analyst consensus figure for the coming years by interacting with our free analyst growth forecast chart.

Other strong companies: Low debt, high returns on equity and good past performance are essential to a strong business. Why not explore our interactive list of stocks with strong trading fundamentals to see if there are any other companies you may not have considered!
PS. The Simply Wall St app performs a daily updated cash flow assessment for each NASDAQGS stock. If you want to find the calculation for other stocks, search here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted longterm analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from pricesensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.