Is Aurora Innovation a Bargain After Recent Volatility and Long Term Cash Flow Projections?

• If you are wondering whether Aurora Innovation at around $4 a share is a bargain or a value trap, you are not alone. This piece will walk through what the numbers actually say.
• The stock has slipped about 4.8% over the last week, but it is still up 9.1% in the last month, even after a tough year to date at minus 31.5% and a 251.3% gain over three years.
• Those swings have come as investors react to ongoing progress in Aurora's self driving truck program and partnerships with major logistics and truck manufacturers, which keep the long term story very much alive. Regulatory developments around autonomous driving and shifting sentiment toward unprofitable growth names have also contributed to the recent volatility.
• Based on our checks, Aurora Innovation earns a valuation score of 3 out of 6, suggesting the market may be overlooking some aspects of its intrinsic value. Next we will break down what that score means across different valuation methods and then finish with a more holistic way to think about what the stock might be worth.

Find out why Aurora Innovation's -41.9% return over the last year is lagging behind its peers.

Approach 1: Aurora Innovation Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth by projecting its future cash flows and then discounting them back to today, using a required rate of return. For Aurora Innovation, the model used is a 2 Stage Free Cash Flow to Equity approach, based on $ cash flow projections.

Aurora currently generates negative free cash flow of about $614.5 Million, reflecting heavy investment in its self driving technology. Analyst forecasts and extrapolations suggest free cash flow could remain negative through 2028 before turning positive, reaching roughly $312.65 Million in 2029. Beyond that, Simply Wall St extends the trend, with projected annual free cash flow climbing toward roughly $1.21 Billion by 2035 as the business scales.

When all of these future cash flows are discounted back to today, the model arrives at an estimated intrinsic value of about $6.27 per share. Compared with the recent share price around $4, this indicates that the stock is valued at a discount of roughly 33.4% on a DCF basis.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Aurora Innovation is undervalued by 33.4%. Track this in your watchlist or portfolio, or discover 916 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Aurora Innovation.

Approach 2: Aurora Innovation Price vs Book

For companies that are still loss making but asset heavy, the price to book ratio is often more informative than earnings based metrics, because it compares what investors are paying to the net assets that underpin the business.

In general, faster growth and lower risk justify paying a higher multiple to book value, while slower growth, execution risk and dilution risk point to a lower, more conservative ratio. Aurora currently trades at about 3.53x book value, which is roughly in line with the broader software industry average of around 3.41x but well below the peer group average of about 16.78x.

Simply Wall St goes a step further by estimating a Fair Ratio, a proprietary view of what Aurora’s price to book multiple should be once factors like its growth outlook, profitability profile, risk, market value and software industry dynamics are all accounted for. This Fair Ratio is more useful than a simple comparison with peers, because it recognises that not all high growth, early stage companies should trade on the same multiple. On this basis, Aurora’s current 3.53x is meaningfully below its Fair Ratio, which some investors may interpret as indicating upside potential if execution stays on track.

Result: UNDERVALUED

PB ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1455 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Aurora Innovation Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of a company’s future with concrete numbers. A Narrative is your story about Aurora Innovation, translated into assumptions about its future revenue, earnings and margins, which then flow into a financial forecast and, ultimately, a fair value estimate. On Simply Wall St’s Community page, used by millions of investors, Narratives are an easy tool that let you see how your assumptions compare with others and with the current share price. They can support your buy or sell decision making process by showing whether your Narrative fair value is above or below today’s market price, and they automatically update when fresh news, earnings or guidance changes the outlook. For example, one Aurora Innovation Narrative might assume rapid adoption of autonomous freight and a much higher fair value, while another might build in slower commercialization and a lower fair value, yet both are transparently tied back to specific, testable assumptions.

Do you think there's more to the story for Aurora Innovation? Head over to our Community to see what others are saying!

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.

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