Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0782
    -0.0012 (-0.11%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2627
    +0.0005 (+0.04%)
     
  • USD/JPY

    151.3370
    -0.0350 (-0.02%)
     
  • Bitcoin USD

    69,961.34
    -839.55 (-1.19%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

A Look At The Fair Value Of Urban Outfitters Inc (NASDAQ:URBN)

Today I will be providing a simple run-through of the discounted cash flows (DCF) method to estimate the attractiveness of Urban Outfitters Inc (NASDAQ:URBN) as an investment opportunity. 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 January 2018 so be sure check the latest calculation for Urban Outfitters here.

Is URBN fairly valued?

I will be using the 2-stage growth model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the initial phase has higher growth rates that plateau over time. To begin, I use the analyst consensus forecast of URBN’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 8.49%. When estimates weren’t available, I’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 $1,057.2M. Want to know how I calculated this value? Take a look at our detailed analysis here.

NasdaqGS:URBN Intrinsic Value Jan 5th 18
NasdaqGS:URBN Intrinsic Value Jan 5th 18

The graph above shows how URBN’s earnings are expected to move in the future, which should give you some color on URBN’s outlook. Then, I calculate the terminal value, which is the business’s cash flow after the first stage. I think it’s suitable 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. After discounting the terminal value back five years, the present value becomes $3,478.2M.

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 $4,535.4M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $41.90, which, compared to the current share price of $35.63, we find that Urban Outfitters is about right, perhaps slightly undervalued at a 14.96% discount to what it is available for right now.

Next Steps:

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

For URBN, I’ve compiled three important aspects you should further examine:

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.

Advertisement