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# Is Elevate Credit Inc (NYSE:ELVT) Worth US\$4.40 Based On Intrinsic Value?

Pricing ELVT, a financial stock, can be difficult since consumer finance businesses have cash flows that are affected by regulations that are not imposed upon other sectors. These lenders, for example, must hold certain levels of capital in order to maintain a safe cash cushion. Emphasizing data points such as book values, with the return and cost of equity, can be beneficial for calculating ELVT’s value. Below I will take you through how to value ELVT in a reasonably effective and simple method.

### What Is The Excess Return Model?

Financial firms differ to other sector firms primarily because of the kind of regulation they face and their asset composition. Strict regulatory environment in United States’s finance industry reduces ELVT’s financial flexibility. Moreover, consumer financials tend to not have significant portions of physical assets on their balance sheet. While traditional DCF models emphasize on inputs such as capital expenditure and depreciation, which is less useful for a financial stock, the Excess Return model focuses on book values and stable earnings.

### Calculating ELVT’s Value

The central assumption for this model is, the value of the company is how much money it can generate from its current level of equity capital, in excess of the cost of that capital. The returns above the cost of equity is known as excess returns:

Excess Return Per Share = (Stable Return On Equity – Cost Of Equity) (Book Value Of Equity Per Share)

= (0.18% – 17%) x \$3.45 = \$0.021

Excess Return Per Share is used to calculate the terminal value of ELVT, which is how much the business is expected to continue to generate over the upcoming years, in perpetuity. This is a common component of discounted cash flow models:

Terminal Value Per Share = Excess Return Per Share / (Cost of Equity – Expected Growth Rate)

= \$0.021 / (17% – 2.9%) = \$0.15

Putting this all together, we get the value of ELVT’s share:

Value Per Share = Book Value of Equity Per Share + Terminal Value Per Share

= \$3.45 + \$0.15 = \$3.6

This results in an intrinsic value of \$3.6. Given ELVT’s current share price of US\$4.40, ELVT is priced higher than its intrinsic value. This means ELVT isn’t an attractive buy right now. Pricing is one part of the analysis of your potential investment in ELVT. Fundamental factors are key to determining if ELVT fits with the rest of your portfolio holdings.

### Next Steps:

For consumer financials, there are three key aspects you should look at:

1. Financial health: Does it have a healthy balance sheet? Take a look at our free bank analysis with six simple checks on things like leverage and risk.
2. Future earnings: What does the market think of ELVT going forward? Our analyst growth expectation chart helps visualize ELVT’s growth potential over the upcoming years.
3. Dividends: Most people buy financial stocks for their healthy and stable dividends. Check out whether ELVT is a dividend Rockstar with our historical and future dividend analysis.

For more details and sources, take a look at our full calculation on ELVT here.

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.