Interview Guides
You are reviewing a public mid-cap industrial business after a sharp share-price move. The CFO has asked you to assess whether the stock is undervalued or overvalued using a simple intrinsic value framework, because the market is currently pricing the company well above its recent trading range. You have management guidance for next year, a steady-state growth assumption, and a discount rate based on the company’s capital structure.
| Metric | Value |
|---|---|
| Next 12 months revenue | $500,000,000 |
| EBIT margin | 14% |
| Tax rate | 25% |
| D&A as % of revenue | 4% |
| Capex as % of revenue | 6% |
| Net working capital as % of revenue | 10% |
| Perpetual growth rate | 3% |
| Discount rate | 9% |
| Net debt | $120,000,000 |
| Shares outstanding | 50,000,000 |
| Current share price | $18.00 |
How would you determine the stock’s intrinsic value per share, and based on that value, would you call the stock undervalued or overvalued?