Is Thermon Group Holdings, Inc. (NYSE:THR) Trading At A 27% Discount?

Simply Wall St.11-23

Key Insights Thermon Group Holdings' estimated fair value is US$42.94 based on 2 Stage Free Cash Flow to Equity Current share price of US$31.18 suggests Thermon Group Holdings is potentially 27% ...

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(NYSE:THR) Trading At A 27% Discount?","media":"Simply Wall St.","content":"<div>\n<p>Key Insights Thermon Group Holdings' estimated fair value is US$42.94 based on 2 Stage Free Cash Flow to Equity   Current share price of US$31.18 suggests Thermon Group Holdings is potentially 27% ...</p>\n\n<a href=\"https://simplywall.st/stocks/us/capital-goods/nyse-thr/thermon-group-holdings/news/is-thermon-group-holdings-inc-nysethr-trading-at-a-27-discou\">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>Is Thermon Group Holdings, Inc. 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(NYSE:THR) Trading At A 27% Discount?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-23 01:42 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://simplywall.st/stocks/us/capital-goods/nyse-thr/thermon-group-holdings/news/is-thermon-group-holdings-inc-nysethr-trading-at-a-27-discou><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights Thermon Group Holdings' estimated fair value is US$42.94 based on 2 Stage Free Cash Flow to Equity   Current share price of US$31.18 suggests Thermon Group Holdings is potentially 27% ...</p>\n\n<a href=\"https://simplywall.st/stocks/us/capital-goods/nyse-thr/thermon-group-holdings/news/is-thermon-group-holdings-inc-nysethr-trading-at-a-27-discou\">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":"BK4100","symbol_name":"有线和卫星","start_time":0,"source_url":"https://simplywall.st/stocks/us/capital-goods/nyse-thr/thermon-group-holdings/news/is-thermon-group-holdings-inc-nysethr-trading-at-a-27-discou","article_id":"2485621363","we_media_id":null,"thumbnails":["https://images.simplywall.st/asset/industry/3051000-choice2-main-header/1585186647175"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485621363","pubTimestamp":1732297354,"columns":[],"sourceInfo":{"source_id":"simplywall_highlight","name":"Simply Wall St."},"weMediaInfo":null,"summary":"Key Insights Thermon Group Holdings' estimated fair value is US$42.94 based on 2 Stage Free Cash Flow to Equity Current...","collect":0,"end_time":0,"defaultTopTitle":"simplywall.st","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4100":"有线和卫星","TV":"墨西哥电视","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","FCF":"第一联邦金融","NYSE":"纽交所","BK4096":"电气部件与设备","THR":"Thermon Group Holdings","BK4211":"区域性银行"},"translate_title":"Thermon Group Holdings，Inc.（纽约证券交易所代码：THR）的交易价格是否有27%的折扣？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DCF":1,"FCF":1,"NYSE":1,"THR":1,"TV":1},"content_text":"Key Insights Thermon Group Holdings' estimated fair value is US$42.94 based on 2 Stage Free Cash Flow to Equity   Current share price of US$31.18 suggests Thermon Group Holdings is potentially 27% undervalued    The US$35.00 analyst price target for THR is 18% less than our estimate of fair value   Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Thermon Group Holdings, Inc. (NYSE:THR) as an investment opportunity  by taking the expected future cash flows and discounting them to their present value.  We will take advantage of the Discounted Cash Flow (DCF) model for this purpose.  Don't get put off by the jargon, the math behind it is actually quite straightforward.  Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation.  If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.  View our latest analysis for Thermon Group Holdings  The Model   We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  To begin with, we have to get estimates of the next ten years of cash flows.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.   A DCF is all about the idea that a dollar in the future is less valuable than a dollar today,  and so the sum of these future cash flows is then discounted to today's value:  10-year free cash flow (FCF) forecast  2025 2026 2027 2028 2029 2030 2031 2032 2033 2034  Levered FCF ($, Millions)  US$51.9m US$72.2m US$74.8m US$77.3m US$79.7m US$82.0m US$84.4m US$86.7m US$89.1m US$91.5m Growth Rate Estimate Source Analyst x1 Analyst x1 Est @ 3.60% Est @ 3.30% Est @ 3.10% Est @ 2.96% Est @ 2.85% Est @ 2.78% Est @ 2.74% Est @ 2.70%  Present Value ($, Millions) Discounted @ 7.5%  US$48.3 US$62.4 US$60.1 US$57.8 US$55.4 US$53.0 US$50.7 US$48.4 US$46.3 US$44.2 (\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$527m 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.  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 (2.6%) 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 7.5%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$91m× (1 + 2.6%) ÷ (7.5%– 2.6%) = US$1.9bPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$1.9b÷ ( 1 + 7.5%)10= US$920m The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is US$1.4b.  In the final step we divide the equity value by the number of shares outstanding.  Compared to the current share price of US$31.2, the company appears   a touch undervalued    at a 27% discount to where the stock price trades currently.   Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. NYSE:THR Discounted Cash Flow November 22nd 2024  Important Assumptions  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 Thermon Group Holdings 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 7.5%, which is based on a levered beta of 1.196. 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 Thermon Group HoldingsStrength Earnings growth over the past year exceeded the industry. Debt is not viewed as a risk. Balance sheet summary for THR. Weakness Earnings growth over the past year is below its 5-year average. Opportunity Annual earnings are forecast to grow faster than the American market. Trading below our estimate of fair value by more than 20%. Threat Annual revenue is forecast to grow slower than the American market.  What else are analysts forecasting for THR?  Next Steps:  Whilst important, the DCF calculation  is only one of many factors that you need to assess for a company.  DCF models are not the be-all and end-all of investment valuation.  Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/overvalued?\"  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   What is the reason for the share price sitting below the intrinsic value?   For Thermon Group Holdings, we've compiled three  further  items  you should consider:  Financial Health: Does THR have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk. Future Earnings: How does THR'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 NYSE every day. If you want to find the calculation for other stocks just search here.Valuation is complex, but we're here to simplify it.Discover if Thermon Group Holdings might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.Access Free AnalysisHave 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":1},"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/2485621363"}