Yahoo Finance Impax Laboratories Inc (NASDAQ:IPXL) Is Trading At A 45% Discount
In this article I am going to calculate the intrinsic value of Impax Laboratories Inc (NASDAQ:IPXL) 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. Also note that this article was written in June 2018 so be sure check the latest calculation for Impax Laboratories here.
Is IPXL fairly valued?
I will be using 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 begin, I pulled together the analyst consensus forecast of IPXL’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 9.06%. This resulted in a present value of 5-year cash flow of US$453.02M. Want to know how I arrived at this number? Take a look at our detailed analysis here.
The infographic above illustrates how IPXL’s top and bottom lines are expected to move going forward, which should give you some color on IPXL’s outlook. Now we need to calculate the terminal value, which is the business’s cash flow after the first stage. It’s appropriate to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes US$1.51B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$1.96B. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $27.36, which, compared to the current share price of $14.99, we find that Impax Laboratories is quite good value at a 45.21% discount to what it is available for right now.
Next Steps:
Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For IPXL, there are three essential factors you should further research:
Financial Health: Does IPXL 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 IPXL’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 IPXL? 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 for every stock on the NASDAQ every 6 hours. If you want to find the calculation for other stocks 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.
