- The estimated fair value of Nodebis Applications is kr1.14 based on the dividend discount model
- With a share price of kr1.17, Nodebis Applications appears to be trading close to its estimated fair value
- Nodebis Applications peers appear to be trading at a higher premium than fair value based on the industry average of -5.0%
In this article, we are going to estimate the net asset value of Nodebis Applications AB (publ) (NGM:NODE) by projecting the future cash flows and then discounting them to today’s value. On this occasion we use the Discounted Cash Flow (DCF) model. Before you think you won’t understand, just read on! It’s actually much less complex than you might think.
In general, we believe that the value of a company is the present value of all the money it will generate in the future. However, a DCF is just one of many valuation metrics and is not without flaws. If you have any burning questions about this type of valuation, take a look at the Simply Wall St.
Check out our latest analysis for Nodebis Applications
Are Nodebis applications fairly rated?
Since Nodebis Applications is active in the it sector, we have to calculate the net asset value slightly differently. Dividends per share (DPS) are used in this approach, as free cash flow is difficult to estimate and often goes unreported by analysts. This often underestimates the value of a stock, but it can still be good when compared to competitors. It uses the ‘Gordon Growth Model’, which simply assumes that dividend payments will continue to rise forever at a sustainable rate of growth. The dividend is expected to grow at an annual growth rate equal to the 5-year average of 10-year government bond yields of 0.6%. We then discount this figure to today’s value at a cost of equity of 7.6%. Compared to the current share price of 1.2 kr, the company appears to be around fair value at the time of writing. However, remember that this is only an approximate estimate, and just like any complex formula: garbage in, garbage out.
Value per share = expected dividend per share / (discount rate – perpetual growth)
= kr 0.08 / (7.6% – 0.6%)
= 1.1 ch
We point out that the most important inputs to a discounted cash flow are the discount rate and, of course, the actual cash flows. You don’t have to agree with this entry, I suggest you redo the calculations yourself and play with them. The DCF also does not take into account the potential cyclicality of an industry or a company’s future capital requirements, so it does not provide a complete picture of a company’s potential performance. Since we consider Nodebis Applications 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) represented by debt. In this calculation we used 7.6%, which is based on a levered beta of 1.178. Beta is a measure of a stock’s volatility compared to the market as a whole. We take 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 company.
SWOT analysis for Nodebis applications
- Dividend ranks among the top 25% of dividend payers in the market.
- The current share price is above our fair value estimate.
- Has sufficient cash career for more than 3 years based on current free cash flows.
- Lack of analyst coverage makes it difficult to determine NODE’s earnings outlook.
- Pays dividends, but business is unprofitable.
While a company’s valuation is important, it is just one of many factors you need to assess for a company. It is not possible to obtain a watertight valuation with a DCF model. Rather, it should be seen as a guide to “what assumptions must be true for this stock to be under/overvalued?” For example, changes in the company’s cost of equity or risk-free rate can have a significant impact on valuation. For Nodebis applications, there are three relevant aspects to investigate further:
- Risks: Note that Nodebis Applications is listed 4 warning signs in our investment analysis and 1 of them is a bit unpleasant…
- Management:Have insiders raised their shares to take advantage of market sentiment for NODE’s future prospects? View our management and governance analysis with insights on CEO compensation and governance factors.
- Other solid companies: Low debt, high returns on equity and good past performance are fundamental to a strong company. Check out our interactive list of stocks with solid company fundamentals to see if there are other companies you may not have thought of!
PS. The Simply Wall St app performs a discounted cash flow valuation every day for each stock on the NGM. If you want to find the calculation for other stocks, you can search here.
Valuation is complex, but we help make it simple.
Find out if Nodebis Applications may be over or undervalued by checking out our comprehensive analysis, including fair value estimates, risks and cautions, dividends, insider trading and financial health.
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