Advertisement
U.S. markets close in 3 hours 38 minutes
  • S&P 500

    5,250.63
    +2.14 (+0.04%)
     
  • Dow 30

    39,778.55
    +18.47 (+0.05%)
     
  • Nasdaq

    16,379.04
    -20.48 (-0.12%)
     
  • Russell 2000

    2,132.97
    +18.62 (+0.88%)
     
  • Crude Oil

    82.56
    +1.21 (+1.49%)
     
  • Gold

    2,234.60
    +21.90 (+0.99%)
     
  • Silver

    24.86
    +0.11 (+0.44%)
     
  • EUR/USD

    1.0801
    -0.0028 (-0.26%)
     
  • 10-Yr Bond

    4.1910
    -0.0050 (-0.12%)
     
  • GBP/USD

    1.2636
    -0.0002 (-0.02%)
     
  • USD/JPY

    151.2670
    +0.0210 (+0.01%)
     
  • Bitcoin USD

    70,751.00
    +1,835.45 (+2.66%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,965.65
    +33.67 (+0.42%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Calculating The Fair Value Of InflaRx N.V. (NASDAQ:IFRX)

Does the November share price for InflaRx N.V. (NASDAQ:IFRX) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

See our latest analysis for InflaRx

Is InflaRx fairly valued?

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. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or 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) forecast

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

Levered FCF (€, Millions)

-€69.0m

-€62.3m

-€47.3m

€6.74m

€9.25m

€11.7m

€14.0m

€15.9m

€17.6m

€19.0m

Growth Rate Estimate Source

Analyst x3

Analyst x3

Analyst x1

Analyst x1

Est @ 37.16%

Est @ 26.6%

Est @ 19.21%

Est @ 14.03%

Est @ 10.41%

Est @ 7.88%

Present Value (€, Millions) Discounted @ 5.9%

-€65.2

-€55.5

-€39.8

€5.4

€6.9

€8.3

€9.3

€10.0

€10.5

€10.6

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = -€99m

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 2.0%. We discount the terminal cash flows to today's value at a cost of equity of 5.9%.

Terminal Value (TV)= FCF2031 × (1 + g) ÷ (r – g) = €19m× (1 + 2.0%) ÷ (5.9%– 2.0%) = €485m

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= €485m÷ ( 1 + 5.9%)10= €273m

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is €174m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of US$4.7, the company appears around fair value at the time of writing. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

dcf
dcf

Important assumptions

Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. 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 InflaRx 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 5.9%, which is based on a levered beta of 0.909. 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.

Looking Ahead:

Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For InflaRx, we've compiled three additional items you should assess:

  1. Risks: You should be aware of the 5 warning signs for InflaRx (3 are a bit unpleasant!) we've uncovered before considering an investment in the company.

  2. Future Earnings: How does IFRX's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

  3. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

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

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Advertisement