Yahoo Finance A Look At The Fair Value Of LogMeIn Inc (NASDAQ:LOGM)
I am going to run you through how I calculated the intrinsic value of LogMeIn Inc (NASDAQ:LOGM) using the discounted cash flow (DCF) method. 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 LogMeIn here.
What’s the value?
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. To start off, I use the analyst consensus forecast of LOGM’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 11.77%. 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$1.71B. Want to understand how I arrived at this number? Check out our detailed analysis here.
The infographic above illustrates how LOGM’s earnings are expected to move in the future, which should give you an idea of LOGM’s outlook. Now we need to calculate the terminal value, which is the business’s cash flow after the first stage. It’s appropriate to use the 10-year government bond rate of 2.8% as the perpetual 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$4.26B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$5.97B. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $114.32, which, compared to the current share price of $109.625, we find that LogMeIn is about right, perhaps slightly undervalued at a 4.11% discount to what it is available for right now.
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company.
For LOGM, I’ve compiled three important factors you should look at:
Financial Health: Does LOGM 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.
Future Earnings: How does LOGM’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.
Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of LOGM? 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.
