As of today (2021-01-27), Kulicke & Soffa Industries's intrinsic value calculated from the Discounted Cash Flow model is $14.01.
Note: Discounted Cash Flow model is only suitable for predictable companies (Business Predictability Rank higher than 1-Star). If the company's predictability rank is 1-Star or Not Rated, result may not be accurate due to the low predictability of business and the data will not be stored into our database.
Kulicke & Soffa Industries's Predictability Rank is 1-Star. Thus, this page is only used for demonstration purposes and the DCF related results in the screener and portfolio will appear as zero.
Margin of Safety (FCF Based) using Discounted Cash Flow model for Kulicke & Soffa Industries is
-161.67%.
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 stock's 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=5% Growth Rate in the growth stage = average free cash flow 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 Free Cash Flow 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. Free Cash Flow per Share: fcf=$1.309. However, GuruFocus DCF calculator is actually a Discounted Earnings calculator, the EPS 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.
Kulicke & Soffa Industries's Intrinsic Value: DCF (FCF Based) for today is calculated as
1. The DCF 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 have relatively consistent performance.
4. The DCF model works poorly for inconsistent performers such as cyclicals.
5. What discount rate should you use? Your expected return from the investment is a good discount rate assumption.
6. A larger margin of safety should be required for companies with less predictable businesses.
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