Is upland software, Inc. (Nasdaq: UPLD) Trade with a 49%discount?

The second phase is also known as terminal value, this is the cash flow of the company after the first phase. The Gordon growth formula is used to calculate the terminal value for a future annual growth rate equal to the 5-year average of the 10-year return of 2.8%. We discount on the terminal cash flows to today’s value at a cost of equity of 11%.

Terminal value (TV)= FCF₂₀₃₄ × (1 + g) ÷ (R – G) = US $ 16m × (1 + 2.8%) ÷ (11% – 2.8%) = US $ 188m

Current value of terminal value (PVTV)= TV / (1 + R)¹⁰= US $ 188m ÷ (1 + 11%)¹⁰= US $ 64m

The total value is the sum of the cash flows for the next ten years plus the discount of the discount, resulting in the total stock value, which in this case is US $ 172 million. The last step is to then divide the share value through the number of outstanding shares. Compared to the current stock price of US $ 3.1, the company seems to be a fairly good value with a 49% discount to where the stock price is currently trading. However, do not forget that this is only an estimated appreciation, and like any complex formula – waste in it, waste out.

The above calculation is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. If you do not agree with this result, try the calculation yourself and play with the assumptions. The DCF also does not take into account the possible cyclicity of an industry, or the future capital requirements of a company, so it does not give a complete picture of the potential performance of a company. Since we look at Hoogland software as potential shareholders, the costs of equity are used as the disconneting foot, instead of the capital costs (or weighted average capital costs, WACCs) that are debts. In this calculation we used 11%, which is based on a leverage beta of 2,000. Beta is a measure of the volatility of a share compared to the market as a whole. We get our beta from the sector average beta from worldwide comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable reach for a stable company.

Although the appreciation of a company is important, this should not be the only statistics that you look at when investigating a company. DCF models are not the all and finite investment rating. You would prefer to apply various cases and assumptions and see how they would influence the appreciation of the company. If a company with a different rate grows, or if the costs of equity or risk -free speed changes considerably, the output can look very different. Why is the intrinsic value higher than the current share price? For Upland software we have compiled three extra elements that you must investigate further:

1. Risks: You must be aware of the 3 warning signals We spotted with upland software.

2. Future income: How does the growth rate of UPLD relate to his colleagues and the wider market? Dig deeper into the consensus number of the analysts for the coming years by interacting with our free analyst -ware chart.

3. Other solid companies: Low debts, a high return on equity and good performance from the past are fundamentally for a strong company. Why not explore our interactive list of shares with solid business fundamentals to see if there are other companies that you may not have considered!

Ps. Simply Wall ST works its DCF calculation every day for every US shares, so if you want to find the intrinsic value of other shares, just search here.

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This article by Simply Wall St is generally in nature. We comment based on historical data and analyst forecasts that only use an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell shares and does not take your objectives or your financial situation into account. We strive to bring you in the long term -targeted analysis, powered by fundamental data. Note that our analysis may not take into account the latest price -sensitive company announcements or qualitative material. Simply Wall St has no position in the aforementioned stocks.