Chid,
I am not sure why I am chiming in on this post. In famous words of dos equis man. I dont always comment, but when i do its really damn important. Just kidding
DCF is somewhat whimsical really. It is kind of how you want the numbers look to you. If you are going for truly deep value then its almost impossible to get something via DCF. In fact in my experience DCF can almost miss lead you in a sense where it will make a stock look cheap, but there is something really going on behind the scenes that would allow it to look cheap on a DCF basis.
But if you have looked at any of my post in the past, i use a blend to get a 'feel' for what the DCF because in the end it is a judgement call anyhow, numbers only tell part of the picture.
In case of BBBY, here is the goods for how i look at something...
A fairly straightforward DCF using a industry style WACC you get to a pretty fairly Value Stock or even perhaps overvalued slightly. For me personally I would rather look at the yield on FCF and also the sum of the next 5 years for FCF and compare it to the mkt cap just to get a feel for what excess cash i get on an investment.
My blend also includes comparables (not really dcf so i wont go into it, this is my least favorite)
Probably my favorite value metric is kind of my own personal FCF to Risk Free Rate calculation (havnt found a fancy name for it like the EKS number :D ) - but it is buffet esque in a sense applying a risk free rate to free cash flow
And no one ever mentions this Burry Buffetology-esque calculation anymore which i find somewhat useful. It says Mastercard at the top, but this is for BBBY ( i did this quick i think inputs are right). It kind of gives you a feel of how they are compounding return on equity and if you are interested in a set it and forget it stock. I dig it....
All in all as far as BBBY goes, it seems BBBY is slightly over valued... on a free cash flow basis it seems to confirm this, there is not really a margin of safety here on any metric. A blend seems to put it valued at about $55.
Intangibly i would suggest to think beyond this. For me the underlying trend is the company has no earnings power or is it paying you to wait. The sentiment/bias seems to be a bit more optimistic of the future therefore giving me the impression its overvalued. I suppose time will tell, but i cant see the safety. |
