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Estimating The Intrinsic Value Of General Finance Corporation (NASDAQ:GFN)

In this article I am going to calculate the intrinsic value of General Finance Corporation (NASDAQ:GFN) using the discounted cash flows (DCF) model. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. Also note that this article was written in May 2018 so be sure check the latest calculation for General Finance here.

Is GFN fairly valued?

I’ve used the 2-stage growth model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. Generally I like to use analyst consensus estimates for free cash flow, but given that GFN has low analyst coverage with no forecast available, I have extrapolated the most recent reported free cash flow (FCF) based on the average annual revenue growth over the past five years, capped at a reasonable level, and discounted these values at the cost of equity of 14.68%. This resulted in a present value of 5-year cash flow of US$100.95M. Keen to know how I calculated this value? Read our detailed analysis here.

NasdaqGM:GFN Future Profit May 9th 18
NasdaqGM:GFN Future Profit May 9th 18

In the visual above, we see how how GFN’s top and bottom lines are expected to move going forward, which should give you some color on GFN’s outlook. Now we need to determine the terminal value, which accounts for all the future cash flows after the five years. It’s appropriate to use the 10-year government bond rate of 2.8% as the steady 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 US$133.55M.

The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is US$234.50M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $8.78, which, compared to the current share price of $9.65, we find that General Finance is fair value, maybe slightly overvalued at the time of writing.

Next Steps:

Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company.

For GFN, I’ve put together three pertinent factors you should further examine:

  1. Financial Health: Does GFN have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Future Earnings: How does GFN’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: Are there other high quality stocks you could be holding instead of GFN? 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 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.

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