Calculating The Fair Value Of 09WOMEN Co., Ltd. (KOSDAQ:366030)

Key Insights

• Using the 2 Stage Free Cash Flow to Equity, 09WOMEN fair value estimate is ₩6,320
• 09WOMEN's ₩5,120 share price indicates it is trading at similar levels as its fair value estimate
• The average premium for 09WOMEN's competitorsis currently 174%

Does the February share price for 09WOMEN Co., Ltd. (KOSDAQ:366030) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

View our latest analysis for 09WOMEN

The Model

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) estimate

	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034
Levered FCF (₩, Millions)	₩8.71b	₩8.15b	₩7.85b	₩7.71b	₩7.68b	₩7.72b	₩7.80b	₩7.93b	₩8.08b	₩8.25b
Growth Rate Estimate Source	Est @ -10.28%	Est @ -6.40%	Est @ -3.68%	Est @ -1.78%	Est @ -0.45%	Est @ 0.49%	Est @ 1.14%	Est @ 1.59%	Est @ 1.91%	Est @ 2.14%
Present Value (₩, Millions) Discounted @ 7.4%	₩8.1k	₩7.1k	₩6.3k	₩5.8k	₩5.4k	₩5.0k	₩4.7k	₩4.5k	₩4.3k	₩4.0k

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = ₩55b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.7%. We discount the terminal cash flows to today's value at a cost of equity of 7.4%.

Terminal Value (TV)= FCF₂₀₃₄ × (1 + g) ÷ (r – g) = ₩8.3b× (1 + 2.7%) ÷ (7.4%– 2.7%) = ₩179b

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= ₩179b÷ ( 1 + 7.4%)¹⁰= ₩88b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is ₩143b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of ₩5.1k, the company appears about fair value at a 19% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.

Important Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at 09WOMEN as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.4%, which is based on a levered beta of 1.003. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

SWOT Analysis for 09WOMEN

Looking Ahead:

Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For 09WOMEN, we've put together three relevant elements you should consider:

1. Risks: To that end, you should be aware of the 3 warning signs we've spotted with 09WOMEN .
2. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
3. Other Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of!

PS. Simply Wall St updates its DCF calculation for every South Korean stock every day, so if you want to find the intrinsic value of any other stock just search here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.