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GuruFocus has detected 1 Warning Sign with IF Bancorp Inc $IROQ.
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IF Bancorp Inc (NAS:IROQ)
Intrinsic Value: DCF (Earnings Based)
$12.63 (As of Today)

As of today, IF Bancorp Inc's intrinsic value calculated from the Discounted Earnings model is $12.63.

Note: Discounted Earnings model is only suitable for predictable companies (Business Predictability Rank higher than 1-Star). Result may not be accurate due to the low predictability of business.

Margin of Safety (Earnings Based) using Discounted Earnings model for IF Bancorp Inc is -58.38%.


This is the intrinsic value calculated from the Discounted Earnings model with default parameters. The calculation method is the same as Discounted Cash Flow model except earnings are used in the calculation instead of free cash flow. This is the default method of calculation with GuruFocus DCF calculator.

Usually a two-stage model is used in calculating the intrinsic value with discounted cash flow model. The first stage is called 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=5%
Growth Rate in the growth stage = average earnings growth rate in the past 10 years. If it is higher than 20%, we use 20%. If it is less than 5%, we use 5% instead. => For companies with Average Earnings Growth Rate in the past 10 years less than 5%, GuruFocus defaults => Growth Rate: 5%

3. Years of Growth Stage: y1=10

4. Terminal Growth Rate: g2=4%

5. Years of Terminal Growth: y2=10

6. Earnings Per Share without NRI: eps without nri=$1.18.
GuruFocus DCF calculator is actually a Discounted Earnings calculator, the Earnings Per Share without NRI 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.

IF Bancorp Inc's Intrinsic Value: DCF (Earnings Based) for today is calculated as:

DCF (Earnings Based)=Earnings Per Share*{[(1+g1)/(1+d)+(1+g1)^2/(1+d)^2+...+(1+g1)^10/(1+d)^10]

set x = (1+g1)/(1+d) = (1+0.05)/(1+0.12) = 0.9375
and y = (1+g2)/(1+d) = (1+0.04)/(1+0.12) = 0.928571428571

DCF (Earnings Based)=eps*{[x+x^2+...+x^10]+x^10*[y+y^2+...+y^10]}

Margin of Safety (Earnings Based)=(DCF (Earnings Based)-Current Price)/DCF (Earnings Based)
=-58.38 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's 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.

Be Aware

What you need to know about Discounted Earnings model:

1. The Discounted Earnings model evaluates a company based on its future earnings power
2. Growth is taken into account; therefore a faster growth company is worth more if everything else is the same.
3. Since we are projecting future growth, it is assumed that the company will grow at the same rate as it did during the past 10 years. Therefore this model works better for the companies that are relatively consistent performers.
4. The Discounted Earnings model works poorly for inconsistent performers like cyclicals.
5. Your expected return from the investment is a reasonable discount rate assumption.
6. A larger margin of safety should be required for companies with less predictable businesses.

You can screen for stocks that trade below their Intrinsic Value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based) with the GuruFocus All-in-One Screener. Companies with a high Predictability Rank that trade at a discount to their Intrinsic Value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based) can be found in the screen of Undervalued Predictable Companies.

Related Terms

Intrinsic Value: Projected FCF, Intrinsic Value: DCF (FCF Based), Free Cash Flow, Earnings Per Share

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