Olaplex Holdings, Inc. (NASDAQ:OLPX) Shares Could Be 49% Below Their Intrinsic Value Estimate

In This Article:

Key Insights

  • Olaplex Holdings' estimated fair value is US$3.33 based on 2 Stage Free Cash Flow to Equity

  • Current share price of US$1.71 suggests Olaplex Holdings is potentially 49% undervalued

  • Analyst price target for OLPX is US$2.42 which is 27% below our fair value estimate

In this article we are going to estimate the intrinsic value of Olaplex Holdings, Inc. (NASDAQ:OLPX) by taking the forecast future cash flows of the company and discounting them back to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

See our latest analysis for Olaplex Holdings

Is Olaplex Holdings Fairly Valued?

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. To start off with, we need to estimate 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) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$131.9m

US$129.1m

US$128.1m

US$128.5m

US$129.7m

US$131.6m

US$134.0m

US$136.8m

US$139.8m

US$143.1m

Growth Rate Estimate Source

Analyst x1

Est @ -2.16%

Est @ -0.72%

Est @ 0.28%

Est @ 0.98%

Est @ 1.47%

Est @ 1.82%

Est @ 2.06%

Est @ 2.23%

Est @ 2.34%

Present Value ($, Millions) Discounted @ 7.9%

US$122

US$111

US$102

US$94.9

US$88.9

US$83.6

US$78.9

US$74.7

US$70.8

US$67.2

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$894m

The second stage is also known as Terminal Value, this is the business's cash flow after 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 7.9%.

Waiting for permission
Allow microphone access to enable voice search

Try again.