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Is There An Opportunity With China Biologic Products Holdings Inc’s (NASDAQ:CBPO) 39% Undervaluation?

Dale Lombardi

Does the share price for China Biologic Products Holdings Inc (NASDAQ:CBPO) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. 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 April 2018 then I highly recommend you check out the latest calculation for China Biologic Products Holdings here.

What’s the value?

I’ve used 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. Firstly, I took the analyst consensus forecast of CBPO’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 10.73%. 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 US$1.19B. Want to understand how I arrived at this number? Check out our detailed analysis here.

NasdaqGS:CBPO Future Profit Apr 30th 18

The infographic above illustrates how CBPO’s earnings are expected to move going forward, which should give you an idea of CBPO’s outlook. Now we need to determine the terminal value, which accounts for all the future cash flows after the five years. I’ve decided 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 US$3.60B.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$4.80B. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $144.81, which, compared to the current share price of $88.15, we see that China Biologic Products Holdings is quite undervalued at a 39.13% 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. What is the reason for the share price to differ from the intrinsic value? For CBPO, I’ve compiled three relevant factors you should further research:

  1. Financial Health: Does CBPO 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 CBPO’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 CBPO? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NASDAQ every 6 hours. If you want to find the calculation for other stocks 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.