Advertisement
U.S. Markets open in 6 hrs 49 mins
  • S&P Futures

    5,305.00
    -3.25 (-0.06%)
     
  • Dow Futures

    40,120.00
    -24.00 (-0.06%)
     
  • Nasdaq Futures

    18,493.50
    -10.25 (-0.06%)
     
  • Russell 2000 Futures

    2,135.10
    -3.30 (-0.15%)
     
  • Crude Oil

    81.82
    +0.47 (+0.58%)
     
  • Gold

    2,217.80
    +5.10 (+0.23%)
     
  • Silver

    24.74
    -0.02 (-0.07%)
     
  • EUR/USD

    1.0823
    -0.0007 (-0.0649%)
     
  • 10-Yr Bond

    4.1960
    0.0000 (0.00%)
     
  • Vix

    12.78
    -0.46 (-3.47%)
     
  • GBP/USD

    1.2626
    -0.0012 (-0.0972%)
     
  • USD/JPY

    151.3240
    +0.0780 (+0.0516%)
     
  • BTC-USD

    70,031.79
    -267.92 (-0.38%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,931.98
    +1.02 (+0.01%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Is Argan Inc (AGX) Worth $57.9 Based On Its Intrinsic Value?

I am going to run you through how I calculated the intrinsic value of Argan Inc (NYSE:AGX) using the discounted cash flow (DCF) method. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. Also note that this article was written in November 2017 so be sure check the latest calculation for Argan here.

What’s the value?

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. To start off, I use the analyst consensus forecast of AGX’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 10.87%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of $284M. Keen to know how I calculated this value? Take a look at our detailed analysis here.

NYSE:AGX Intrinsic Value Nov 18th 17
NYSE:AGX Intrinsic Value Nov 18th 17

Above is a visual representation of how AGX’s top and bottom lines are expected to move going forward, which should give you an idea of AGX’s outlook. Next, I calculate the terminal value, which is the business’s cash flow after the first stage. I’ve decided to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes $349M.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is $633M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $40.74, which, compared to the current share price of $57.9, we find that Argan is quite expensive and not available at a discount at this time.

Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For AGX, I’ve compiled three pertinent aspects you should further examine:

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NYSE every 6 hours. If you want to find the calculation for other stocks just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

Advertisement