How far off is Changyoucom Limited (NASDAQ:CYOU) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced using the discounted cash flows (DCF) model. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after November 2017 then I highly recommend you check out the latest calculation for Changyou.com here.

### Whatâ€™s the value?

I use what is known as the 2-stage model, which simply means we have two different periods of varying growth rates for the companyâ€™s cash flows. Generally the initial phase has higher growth rates that plateau over time. To begin, I took the analyst consensus estimates of CYOUâ€™s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 9.63%. When estimates werenâ€™t available, Iâ€™ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a **present value of 5-year cash flow of $827M**. Keen to understand how I calculated this value? Take a look at our detailed analysis here.

In the visual above, we see how how CYOUâ€™s top and bottom lines are expected to move going forward, which should give you some color on CYOUâ€™s outlook. Then, I determine the terminal value, which accounts for all the future cash flows after the five years. I think itâ€™s suitable to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. The **present value of the terminal value after discounting it back five years is $2,070M**.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is **$2,898M**. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of **$56.80**, which, compared to the current share price of $37.79, we see that Changyou.com is quite **undervalued** at a **33.47% discount to what it is available for right now**.

### Next Steps:

Whilst important, DCF calculation shouldnâ€™t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For CYOU, Iâ€™ve put together three important factors you should further research:

PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.

*To help readers see pass 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.*