Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) Shares Could Be 22% Below Their Intrinsic Value Estimate

Simply Wall St.11-05

Key Insights Petco Health and Wellness Company's estimated fair value is US$5.53 based on 2 Stage Free Cash Flow to Equity Current share price of US$4.30 suggests Petco Health and Wellness Company ...

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(NASDAQ:WOOF) Shares Could Be 22% Below Their Intrinsic Value Estimate","media":"Simply Wall St.","content":"<div>\n<p>Key Insights Petco Health and Wellness Company's estimated fair value is US$5.53 based on 2 Stage Free Cash Flow to Equity   Current share price of US$4.30 suggests Petco Health and Wellness Company ...</p>\n\n<a href=\"https://simplywall.st/stocks/us/retail/nasdaq-woof/petco-health-and-wellness/news/petco-health-and-wellness-company-inc-nasdaqwoof-shares-coul\">Source Link</a>\n\n</div>\n","source":"simplywall_highlight","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Petco Health and Wellness Company, Inc. 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(NASDAQ:WOOF) Shares Could Be 22% Below Their Intrinsic Value Estimate\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-05 19:19 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://simplywall.st/stocks/us/retail/nasdaq-woof/petco-health-and-wellness/news/petco-health-and-wellness-company-inc-nasdaqwoof-shares-coul><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights Petco Health and Wellness Company's estimated fair value is US$5.53 based on 2 Stage Free Cash Flow to Equity   Current share price of US$4.30 suggests Petco Health and Wellness Company ...</p>\n\n<a href=\"https://simplywall.st/stocks/us/retail/nasdaq-woof/petco-health-and-wellness/news/petco-health-and-wellness-company-inc-nasdaqwoof-shares-coul\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"FT_SY_MNQ","symbol_name":"微型NQ100指数","start_time":0,"source_url":"https://simplywall.st/stocks/us/retail/nasdaq-woof/petco-health-and-wellness/news/petco-health-and-wellness-company-inc-nasdaqwoof-shares-coul","article_id":"2481687972","we_media_id":null,"thumbnails":["https://images.simplywall.st/asset/industry/4444000-choice2-main-header/1585186827172"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481687972","pubTimestamp":1730805545,"sourceInfo":{"source_id":"simplywall_highlight","name":"Simply Wall St."},"weMediaInfo":null,"summary":"Key Insights Petco Health and Wellness Company's estimated fair value is US$5.53 based on 2 Stage Free Cash Flow to...","collect":0,"end_time":0,"defaultTopTitle":"simplywall.st","property":[],"viewcount":null,"language":"en","relate_stocks":{"NDAQ":"纳斯达克OMX交易所","IE00B64PRP62.GBP":"GUINNESS GLOBAL MONEY MANAGERS \"C\" (GBP) ACC","SQQQ":"纳指三倍做空ETF","BK4100":"有线和卫星","BK4211":"区域性银行","BK6088":"石油天然气设备与服务","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","QLD":"纳指两倍做多ETF","IE00B3QW5Z07.USD":"GUINNESS GLOBAL MONEY MANAGERS \"C\" (USD) ACC","Z4D.SI":"颐峰控股","BK6046":"人力资源与就业服务","PSQ":"纳指反向ETF","IE00BGHQF748.EUR":"GUINNESS GLOBAL MONEY MANAGERS \"C\" (EUR) ACC","BK4588":"碎股","TV":"墨西哥电视","TQQQ":"纳指三倍做多ETF","WOOF":"Petco Health and Wellness Company, Inc.",".IXIC":"NASDAQ Composite","BK4200":"专卖店","BK4112":"金融交易所和数据","FCF":"第一联邦金融","QID":"纳指两倍做空ETF","LU2095319765.USD":"Natixis Thematics Subscription Economy R/A USD","LU2210150020.SGD":"Natixis Thematics Subscription Economy R/A SGD","LU2210149790.SGD":"Natixis Thematics Subscription Economy R/A SGD-H","IE00BKPKM429.USD":"NEUBERGER BERMAN GLOBAL SUSTAINABLE EQUITY \"A\" (USD) ACC","BK4585":"ETF&股票定投概念"},"translate_title":"Petco Health and Wellness Company,Inc.（纳斯达克股票代码：WOOF）的股价可能比其内在价值估计低22%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"Z4D.SI":1,"WOOF":1,"TV":1,"DCF":1,"FCF":1,"NDAQ":1,".IXIC":1,"TQQQ":0.6,"SQQQ":0.6,"QLD":0.6,"QID":0.6,"PSQ":0.6,"NQmain":0.6,"MNQmain":0.6},"content_text":"Key Insights Petco Health and Wellness Company's estimated fair value is US$5.53 based on 2 Stage Free Cash Flow to Equity   Current share price of US$4.30 suggests Petco Health and Wellness Company is potentially 22% undervalued    The US$3.74 analyst price target for WOOF is 32% less than our estimate of fair value   Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) as an investment opportunity  by projecting its future cash flows and then discounting them to today's value.  We will use the Discounted Cash Flow (DCF) model on this occasion.  Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.  We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios.  Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.  View our latest analysis for Petco Health and Wellness Company  The Calculation   We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  To start off with, we need to estimate the next ten years of cash flows.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.   Generally we assume that a dollar today is more valuable than a dollar in the future,  so we discount the value of these future cash flows to their estimated value in today's dollars:  10-year free cash flow (FCF) estimate  2025 2026 2027 2028 2029 2030 2031 2032 2033 2034  Levered FCF ($, Millions)  US$53.9m US$35.3m US$36.0m US$139.0m US$151.0m US$160.2m US$168.2m US$175.3m US$181.8m US$187.9m Growth Rate Estimate Source Analyst x3 Analyst x3 Analyst x2 Analyst x1 Analyst x1 Est @ 6.07% Est @ 5.00% Est @ 4.25% Est @ 3.72% Est @ 3.36%  Present Value ($, Millions) Discounted @ 11%  US$48.7 US$28.8 US$26.5 US$92.4 US$90.7 US$86.8 US$82.3 US$77.5 US$72.6 US$67.8 (\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$674m The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  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 (2.5%) 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 11%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$188m× (1 + 2.5%) ÷ (11%– 2.5%) = US$2.3bPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$2.3b÷ ( 1 + 11%)10= US$843m 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$1.5b.  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$4.3, the company appears   a touch undervalued    at a 22% 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. NasdaqGS:WOOF Discounted Cash Flow November 5th 2024  Important Assumptions  The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows.  You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them.  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 Petco Health and Wellness Company 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 11%, which is based on a levered beta of 2.000. 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 Petco Health and Wellness CompanyStrength  No major strengths identified for WOOF.WeaknessShareholders have been diluted in the past year.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. Have WOOF insiders been buying lately? ThreatDebt is not well covered by operating cash flow. Is WOOF well equipped to handle threats?  Looking Ahead:  Whilst important, the DCF calculation  is only one of many factors that you need to assess 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 example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation.   Can we work out why the company is trading at a discount to intrinsic value?   For Petco Health and Wellness Company, we've compiled three  relevant  factors  you should explore:   Risks: You should be aware of the 2 warning signs for Petco Health and Wellness Company (1 shouldn't be ignored!) we've uncovered before considering an investment in the company.  Future Earnings: How does WOOF'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 High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!   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.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave 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.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481687972"}