Market Cap | 255.83 M | P/E(ttm) | |
---|---|---|---|
Enterprise Value | 436.13 M | P/B | 2.70 |
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As of today, ARC Document Solutions Inc's intrinsic value calculated from the Discounted Cash Flow model is $0.00.
Margin of Safety (DCF) using Discounted Cash Flow model for ARC Document Solutions Inc is -12.72%.
This is the intrinsic value calculated from the Discounted Cash Flow model with default parameters. In a discounted cash flow model, the future cash flow is estimated based on a cash flow growth rate and a discount rate. The cash flow of the future is discounted to its current value at the discount rate. All of the discounted future cash flow is added together to get the current intrinsic value of the company.
Usually a two-stage model is used when calculating a stocks intrinsic value using a discounted cash flow model. The first stage is called the growth stage; the second is called the terminal stage. In the growth stage the company grows at a faster rate. Because it cannot grow at that rate forever, a lower rate is used for the terminal stage.
GuruFocus DCF calculator is a two-stage model. The default values are defined as:
1. Discount Rate: d=12%
2. Growth Rate in the growth stage: g1=0.00%.
Growth Rate in the growth stage = average earnings growth rate in the past 10 years or 20%, whichever is less => Average Earnings Growth Rate in the past 10 years was 0.00% which is less than 20% => Growth Rate: 0.00%
4. Terminal Growth Rate: g2=4%
3. Years of Growth Stage: y1=10
5. Years of Terminal Growth: y2=10
6. Free Cash Flow Per Share: fcf=$0.62.
However, GuruFocus DCF calculator is actually a Discounted Earnings calculator, the earnings per share is used as the default. The reason we are doing this is we found that historically stock prices are more correlated with earnings than free cash flow.
All of the default settings can be changed and the results are calculated automatically.
ARC Document Solutions Inc's Intrinsic Value (DCF) for today is calculated as
DCF | = | fcf | * | {[(1+g1)/(1+d) | + | (1+g1)^2/(1+d)^2 | + | ... | + | (1+g1)^10/(1+d)^10] |
+ | (1+g1)^10/(1+d)^10 | * | [(1+g2)/(1+d) | + | (1+g2)^2/(1+d)^2 | + | ... | + | (1+g2)^10/(1+d)^10]} |
set x = (1+g1)/(1+d) = (1+0)/(1+0.12) = 0.892857142857
and y = (1+g2)/(1+d) = (1+0.04)/(1+0.12) = 0.928571428571
DCF | = | fcf | * | {[x | + | x^2 | + | ... | + | x^10] | + | x^10 | * | [y | + | y^2 | + | ... | + | y^10]} |
= | fcf | * | [x | * | (1-x^10) | / | (1-x) | + | x^10 | * | y | * | (1-y^10) | / | (1-y)] | |||||
= | 0.62 | * | 7.84099732898 | |||||||||||||||||
= | 4.86 |
Margin of Safety (DCF) | = | (Intrinsic Value (DCF) | - | Current Price) | / | Intrinsic Value (DCF) |
= | (4.86 | - | 5.48) | / | 4.86 | |
= | -12.72 % |
* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.
Unlike valuation methods such as Net Current Asset Value, Tangible Book Value per Share, Graham Number, Median Ratio etc, discounted Cash Flow model evaluates the companies based on their future earnings power instead of their assets.
A larger margin of safety should be required for companies with less predictable businesses.
You can screen stocks that trade below their intrinsic value (DCF) and Intrinsic Value (Discounted What you need to know about the DCF model:
1. The DCF model evaluates a company based on its future earnings powerIntrinsic Value (DCF Projected), Intrinsic Value (DE), Free Cash Flow, Free Cash Flow Per Share