Is Interface, Inc. (NASDAQ:TILE) Trading At A 39% Discount?

In This Article:

Key Insights

  • The projected fair value for Interface is US$40.68 based on 2 Stage Free Cash Flow to Equity

  • Current share price of US$24.99 suggests Interface is potentially 39% undervalued

  • Our fair value estimate is 49% higher than Interface's analyst price target of US$27.33

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Interface, Inc. (NASDAQ:TILE) as an investment opportunity by projecting its future cash flows and then discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

View our latest analysis for Interface

Crunching The Numbers

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last 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, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$111.2m

US$111.0m

US$111.7m

US$113.0m

US$114.9m

US$117.1m

US$119.6m

US$122.4m

US$125.3m

US$128.4m

Growth Rate Estimate Source

Est @ -1.45%

Est @ -0.23%

Est @ 0.63%

Est @ 1.23%

Est @ 1.64%

Est @ 1.94%

Est @ 2.14%

Est @ 2.29%

Est @ 2.39%

Est @ 2.46%

Present Value ($, Millions) Discounted @ 7.0%

US$104

US$97.0

US$91.3

US$86.4

US$82.1

US$78.3

US$74.7

US$71.5

US$68.4

US$65.5

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$819m

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