Calculating The Intrinsic Value Of Ingles Markets, Incorporated (NASDAQ:IMKT.A)

In This Article:

Key Insights

  • Using the 2 Stage Free Cash Flow to Equity, Ingles Markets fair value estimate is US$87.31

  • Current share price of US$71.05 suggests Ingles Markets is potentially trading close to its fair value

How far off is Ingles Markets, Incorporated (NASDAQ:IMKT.A) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value. This will be done using the Discounted Cash Flow (DCF) model. It may sound complicated, but actually it is quite simple!

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

Check out our latest analysis for Ingles Markets

Step By Step Through The Calculation

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. 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.

Generally we assume that a dollar today is more valuable than a dollar in the future, 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 ($, Millions)

US$95.9m

US$83.5m

US$76.5m

US$72.7m

US$70.7m

US$69.9m

US$69.9m

US$70.4m

US$71.4m

US$72.6m

Growth Rate Estimate Source

Est @ -19.69%

Est @ -13.00%

Est @ -8.31%

Est @ -5.03%

Est @ -2.74%

Est @ -1.13%

Est @ -0.01%

Est @ 0.78%

Est @ 1.33%

Est @ 1.72%

Present Value ($, Millions) Discounted @ 6.3%

US$90.3

US$73.9

US$63.7

US$56.9

US$52.1

US$48.5

US$45.6

US$43.2

US$41.2

US$39.4

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$555m

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.6%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 6.3%.

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