Yahoo Finance Calculating The Fair Value Of Avid Technology Inc (NASDAQ:AVID)
In this article I am going to calculate the intrinsic value of Avid Technology Inc (NASDAQ:AVID) using the discounted cash flows (DCF) model. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after June 2018 then I highly recommend you check out the latest calculation for Avid Technology here.
What’s the value?
I’ve used the 2-stage growth model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the initial phase has higher growth rates that plateau over time. To start off, I took the analyst consensus estimates of AVID’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 15.44%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of US$77.75M. Want to understand how I calculated this value? Check out our detailed analysis here.
Above is a visual representation of how AVID’s earnings are expected to move in the future, which should give you some color on AVID’s outlook. Then, I determine the terminal value, which is the business’s cash flow after the first stage. I’ve decided to use the 10-year government bond rate of 2.8% as the perpetual growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is US$101.07M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$178.83M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $4.31, which, compared to the current share price of $5, we find that Avid Technology is fair value, maybe slightly overvalued at the time of writing.
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company.
For AVID, there are three essential factors you should further research:
Financial Health: Does AVID 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 AVID’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: Are there other high quality stocks you could be holding instead of AVID? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.