Yahoo Finance A Look At The Intrinsic Value Of Enphase Energy Inc (NASDAQ:ENPH)
Today I will be providing a simple run-through of the discounted cash flows (DCF) method to estimate the attractiveness of Enphase Energy Inc (NASDAQ:ENPH) as an investment opportunity. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Also note that this article was written in June 2018 so be sure check the latest calculation for Enphase Energy here.
Is ENPH fairly valued?
We are going to use a two-stage DCF model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have perpetual stable growth rate. To begin, I pulled together the analyst consensus estimates of ENPH’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 10.56%. This resulted in a present value of 5-year cash flow of US$148.70M. Want to understand how I calculated this value? Read our detailed analysis here.
The infographic above illustrates how ENPH’s top and bottom lines are expected to move going forward, which should give you some color on ENPH’s outlook. Secondly, I calculate the terminal value, which is the business’s cash flow after the first stage. I think it’s suitable 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. Discounting the terminal value back five years gives us a present value of US$488.80M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$637.49M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $6.58, which, compared to the current share price of $5.98, we find that Enphase Energy is about right, perhaps slightly undervalued at a 9.15% discount to what it is available for right now.
Next Steps:
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company.
For ENPH, I’ve compiled three relevant aspects you should further research:
Financial Health: Does ENPH 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 ENPH’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 ENPH? 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.
