Is there an opportunity with the 50% undervaluation of Wallbox NV (NYSE: WBX)?
Today we are going to walk through one way to estimate the intrinsic value of Wallbox NV (NYSE:WBX) by estimating the company’s future cash flows and discounting them to their present value. Our analysis will use the discounted cash flow (DCF) model. Believe it or not, it’s not too hard to follow, as you’ll see in our example!
Businesses can be valued in many ways, which is why we emphasize that a DCF is not perfect for all situations. For those who are passionate about stock analysis, the Simply Wall St analysis template here may interest you.
See our latest analysis for Wallbox
crush numbers
We will use a two-stage DCF model which, as the name suggests, takes into account two stages of growth. The first stage is usually a period of higher growth which stabilizes towards the terminal value, captured in the second period of “sustained growth”. 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 need to discount the sum of these future cash flows to arrive at an estimate of present value:
10-Year Free Cash Flow (FCF) Forecast
2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | |
Leveraged FCF (€, Millions) | -€96.6 million | -€102.9m | -€85.7m | -€15.2m | €77.0 million | €124.3 million | €178.5 million | €233.9 million | €286.1 million | €332.5 million |
Growth rate estimate Source | Analyst x2 | Analyst x2 | Analyst x2 | Analyst x2 | Analyst x1 | Is at 61.42% | Is at 43.57% | Is at 31.08% | East @ 22.33% | Is at 16.21% |
Present value (in millions of euros) discounted at 8.6% | -88.9€ | -87.2€ | -66.8€ | -10.9€ | 50.9 € | 75.6 € | €99.9 | 121 € | 136 € | 145 € |
(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = €374 million
The second stage is also known as the terminal value, it is the cash flow of the business after the first stage. The Gordon Growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average 10-year government bond yield of 1.9%. We discount terminal cash flows to present value at a cost of equity of 8.6%.
Terminal value (TV)= FCF_{2031} × (1 + g) ÷ (r – g) = €333M × (1 + 1.9%) ÷ (8.6%–1.9%) = €5.0B
Present value of terminal value (PVTV)= TV / (1 + r)^{ten}= €5.0 billion÷ ( 1 + 8.6%)^{ten}= €2.2 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 2.6 billion euros. In the last step, we divide the equity value by the number of shares outstanding. Compared to the current share price of $8.4, the company looks quite undervalued at a 50% discount to the current share price. Remember though that this is only a rough estimate, and like any complex formula – trash in, trash out.
Important assumptions
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 that 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 Wallbox 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 8.6%, which is based on a leveraged beta of 1.154. 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 :
Although the valuation of a business is important, it will ideally not be the only piece of analysis you will look at for a business. DCF models are not the be-all and end-all of investment valuation. Preferably, you would apply different cases and assumptions and see their impact on the valuation of the business. For example, changes in the company’s cost of equity or the risk-free rate can have a significant impact on the valuation. Can we understand why the company is trading at a discount to its intrinsic value? For Wallbox, we’ve put together three relevant things you should consider:
- Risks: For example, we found 1 warning sign for Wallbox that you must consider before investing here.
- Future earnings: How does WBX’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. Simply Wall St updates its DCF calculation for every US stock daily, so if you want to find the intrinsic value of any other stock, do a 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 long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.