The Simply Good Foods Company's (NASDAQ:SMPL) Intrinsic Value Is Potentially 71% Above Its Share Price

Simply Wall St.11-15

Key Insights Using the 2 Stage Free Cash Flow to Equity, Simply Good Foods fair value estimate is US$64.00 Simply Good Foods is estimated to be 42% undervalued based on current share price of US$...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThe Simply Good Foods Company's (NASDAQ:SMPL) Intrinsic Value Is Potentially 71% Above Its Share Price\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-15 19:38 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/simply-good-foods-companys-nasdaq-113836181.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n Using the 2 Stage Free Cash Flow to Equity, Simply Good Foods fair value estimate is US$64.00 \n Simply Good Foods is estimated to be 42% undervalued based on current share price of US$...</p>\n\n<a href=\"https://finance.yahoo.com/news/simply-good-foods-companys-nasdaq-113836181.html\">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":"BK4112","symbol_name":"金融交易所和数据","start_time":0,"source_url":"https://finance.yahoo.com/news/simply-good-foods-companys-nasdaq-113836181.html","article_id":"2483210713","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/PfwIuCLz.FyUs9V2w7J.FQ--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/e15b0d88b0885067ee46b65c5e0ec0bd"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2483210713","pubTimestamp":1731670716,"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Using the 2 Stage Free Cash Flow to Equity, Simply Good Foods fair value estimate is US$64.00. Simply Good Foods is estimated to be 42% undervalued based on current share price of US$37.32. The US$38.90 analyst price target for SMPL is 39% less than our estimate of fair value. How far off is The Simply Good Foods Company  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. We will use the Discounted Cash Flow  model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. 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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. 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. \n 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 still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. \n View our latest analysis for Simply Good Foods \n The Method \n We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. 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. \n A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars: \n 10-year free cash flow (FCF) estimate \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF ($, Millions) \nUS$207.3m\nUS$217.5m\nUS$214.5m\nUS$221.0m\nUS$235.0m\nUS$241.2m\nUS$247.6m\nUS$254.1m\nUS$260.7m\nUS$267.6m\n\n\nGrowth Rate Estimate Source\nAnalyst x4\nAnalyst x4\nAnalyst x2\nAnalyst x1\nAnalyst x1\nEst @ 2.64%\nEst @ 2.63%\nEst @ 2.63%\nEst @ 2.63%\nEst @ 2.63%\n\n\n Present Value ($, Millions) Discounted @ 5.9% \nUS$196\nUS$194\nUS$181\nUS$176\nUS$176\nUS$171\nUS$166\nUS$160\nUS$155\nUS$151\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$1.7b\n 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 2.6%. We discount the terminal cash flows to today's value at a cost of equity of 5.9%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$268m× (1 + 2.6%) ÷ (5.9%– 2.6%) = US$8.3b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$8.3b÷ ( 1 + 5.9%)10= US$4.7b\n 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$6.4b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$37.3, the company appears quite undervalued at a 42% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. \n\n\n\n  NasdaqCM:SMPL Discounted Cash Flow November 15th 2024\n \n\n The Assumptions \n We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the 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 Simply Good Foods 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 5.9%, 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. \nSWOT Analysis for Simply Good Foods\n\n\nStrength\n\nEarnings growth over the past year exceeded the industry.\n\n\nDebt is not viewed as a risk.\n\n\nBalance sheet summary for SMPL.\n\n\n\nWeakness\n\nEarnings growth over the past year is below its 5-year average.\n\n\n\nOpportunity\n\nAnnual earnings are forecast to grow for the next 3 years.\n\n\nTrading below our estimate of fair value by more than 20%.\n\n\n\nThreat\n\n Annual earnings are forecast to grow slower than the American market.\n\n\nWhat else are analysts forecasting for SMPL?\n\n\n\n Next Steps: \n Whilst important, the DCF calculation shouldn't be the only metric you look at when researching 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. 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 Simply Good Foods, we've compiled three pertinent aspects you should explore: \n\n Risks: For example, we've discovered 1 warning sign for Simply Good Foods that you should be aware of before investing here. \n Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for SMPL's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. \n 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! \n\n 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.\nHave 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":null,"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":"4.29.2","shortVersion":"4.29.2","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/2483210713"}