Key findings

The forecast fair value for WELL Health Technologies is CA$8.50 based on the 2step Free Cash Flow to Equity

WELL Health Technologies' share price of CA$4.79 suggests the company could be undervalued by 44%

Our fair value estimate is 13% above WELL Health Technologies' analyst price target of CA$7.52
How far is WELL Health Technologies Corp. (TSE:WELL) from its intrinsic value? Using the most recent financial data, we will check whether the stock is fairly valued by estimating the company's future cash flows and discounting them to their current value. This is done using the Discounted Cash Flow (DCF) model. Models like this may seem incomprehensible to a layperson, but they are relatively easy to follow.
However, keep in mind that there are many ways to estimate the value of a company, and a DCF is just one of them. If you want to learn more about intrinsic value, you should check out Simply Wall St's analysis model.
Check out our latest analysis for WELL Health Technologies
The method
We use a twostage DCF model which, as the name suggests, considers two stages of growth. The first stage is generally a period of higher growth that stabilizes towards the terminal value, which is captured in the second stage of “steady growth”. The first stage requires us to estimate the company's cash flows for the next ten years. 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 that companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will slow their growth rate over this period. We do this to take into account that growth tends to slow more in the early years than in later years.
In general, we assume that a dollar today is worth more than a dollar in the future. Therefore, we need to discount the sum of these future cash flows to arrive at an estimate of present value:
10year free cash flow (FCF) forecast
2025 
2026 
2027 
2028 
2029 
2030 
2031 
2032 
2033 
2034 

Leveraged FCF (CA$, million) 
CA$67.6 million 
CA$74.4 million 
CA$78.5 million 
CA$81.7 million 
CA$84.5 million 
CA$87.1 million 
CA$89.5 million 
CA$91.8 million 
CA$94.1 million 
CA$96.2 million 
Source of growth rate estimate 
Analyst x3 
Analyst x1 
Analyst x1 
Estimated at 4.08% 
Estimated at 3.48% 
Estimated at 3.06% 
Estimated at 2.77% 
Estimated at 2.56% 
Estimated at 2.42% 
Estimated at 2.32% 
Present value (in million CA$) discounted at 5.8% 
63.9 CA$ 
66.4 CA$ 
66.2 CA$ 
65.2 CA$ 
63.7 CA$ 
62.1 CA$ 
60.3 CA$ 
58.4 CA$ 
56.5 CA$ 
54.7 CA$ 
(“Est” = FCF growth rate, estimated by Simply Wall St)
Present value of 10year cash flow (PVCF) = CA$617 million
After calculating the present value of future cash flows in the first 10year period, we need to calculate the terminal value, which takes into account all future cash flows after the first period. For various reasons, a very conservative growth rate is used, which cannot exceed a country's GDP growth. In this case, we used the 5year average of the 10year government bond yield (2.1%) to estimate future growth. In the same way as with the 10year “growth” period, we discount future cash flows to today's value, using a cost of equity of 5.8%.
Final value (TV)= FCF_{2034} × (1 + g) ÷ (r – g) = CA$96 million × (1 + 2.1%) ÷ (5.8% – 2.1%) = CA$2.6 billion
Present value of terminal value (PVTV)= TV / (1 + r)^{10}= CA$2.6 billion ÷ ( 1 + 5.8 %)^{10}= CA$1.5 billion
The total value is the sum of the next ten years' cash flows plus the discounted terminal value, which gives the total equity value, which in this case is CA$2.1 billion. In the final step, we divide the equity value by the number of shares outstanding. Compared to the current share price of CA$4.8, the company appears quite undervalued at a 44% discount to the current share price. The assumptions in any calculation have a big impact on the valuation, so it's better to consider this a rough estimate that is not accurate to the last cent.
Important assumptions
We should point out that the key inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is making your own assessment of a company's future performance, so try the calculation yourself and check your own assumptions. DCF also does not take into account the possible cyclicality of an industry or a company's future capital needs, and therefore does not provide a complete picture of a company's potential performance. Since we are viewing WELL Health Technologies as prospective shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC), which takes debt into account. In this calculation, we used 5.8%, which is based on a leveraged beta of 0.813. Beta is a measure of a stock's volatility relative to the overall market. We get our beta from the industry average beta of globally comparable companies, with a set limit between 0.8 and 2.0, which is a reasonable range for a stable company.
SWOT Analysis for WELL Health Technologies
Strength
weakness
Opportunity
Danger
Go on:
Valuation is only one side of the coin when developing your investment thesis and should not be the only metric you consider when researching a company. It is not possible to get a foolproof valuation using a DCF model. Instead, the best use of a DCF model is to test certain assumptions and theories to see if they would lead to an undervaluation or overvaluation of the company. For example, changes in the company's cost of equity or riskfree interest rate can significantly affect the valuation. Can we find out why the company is trading at a discount to intrinsic value? For WELL Health Technologies, there are three relevant points to consider:

Risks: For example, we found 4 warning signs for WELL Health Technologies (1 is worrying) You should be aware of this.

Future income: How does WELL's growth rate compare to competitors and the overall market? Learn more about analyst consensus numbers for the coming years by using our free chart of analyst growth expectations.

Other solid companies: Low debt, high returns on equity, and good past performance are the foundation of a strong company. Check out our interactive list of stocks with solid business fundamentals to see if there are any other companies you may not have considered!
PS. Simply Wall St updates its DCF calculation for each Canadian stock daily, so if you want to find out the intrinsic value of another stock, just search here.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with longterm analysis based on fundamental data. Note that our analysis may not take into account the latest pricesensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
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