Are Investors Undervaluing Wishpond Technologies Ltd. (CVE:WISH) By 47%?

Key Insights

  • The projected fair value for Wishpond Technologies is CA$0.55 based on 2 Stage Free Cash Flow to Equity

  • Current share price of CA$0.29 suggests Wishpond Technologies is potentially 47% undervalued

  • The CA$0.88 analyst price target for WISH is 60% more than our estimate of fair value

Does the April share price for Wishpond Technologies Ltd. (CVE:WISH) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by projecting its future cash flows and then discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

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Is Wishpond Technologies Fairly Valued?

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. 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, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF (CA$, Millions)

CA$900.0k

CA$1.08m

CA$1.24m

CA$1.37m

CA$1.49m

CA$1.59m

CA$1.67m

CA$1.74m

CA$1.81m

CA$1.87m

Growth Rate Estimate Source

Analyst x1

Est @ 19.93%

Est @ 14.66%

Est @ 10.97%

Est @ 8.39%

Est @ 6.58%

Est @ 5.31%

Est @ 4.43%

Est @ 3.81%

Est @ 3.37%

Present Value (CA$, Millions) Discounted @ 7.2%

CA$0.8

CA$0.9

CA$1.0

CA$1.0

CA$1.1

CA$1.0

CA$1.0

CA$1.0

CA$1.0

CA$0.9

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = CA$9.9m