Latest news with #DormanProducts'
Yahoo
11-04-2025
- Business
- Yahoo
Are Investors Undervaluing Dorman Products, Inc. (NASDAQ:DORM) By 31%?
Using the 2 Stage Free Cash Flow to Equity, Dorman Products fair value estimate is US$165 Dorman Products' US$114 share price signals that it might be 31% undervalued Analyst price target for DORM is US$145 which is 13% below our fair value estimate Today we will run through one way of estimating the intrinsic value of Dorman Products, Inc. (NASDAQ:DORM) by taking the expected future cash flows and discounting them to today's value. This will be done using the Discounted Cash Flow (DCF) model. Believe it or not, it's not too difficult to follow, as you'll see from our example! Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF ($, Millions) US$203.6m US$217.1m US$229.0m US$239.6m US$249.3m US$258.5m US$267.3m US$275.9m US$284.3m US$292.8m Growth Rate Estimate Source Est @ 8.27% Est @ 6.61% Est @ 5.45% Est @ 4.64% Est @ 4.07% Est @ 3.68% Est @ 3.40% Est @ 3.20% Est @ 3.07% Est @ 2.97% Present Value ($, Millions) Discounted @ 7.2% US$190 US$189 US$186 US$181 US$176 US$170 US$164 US$158 US$152 US$146 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$1.7b We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.8%. We discount the terminal cash flows to today's value at a cost of equity of 7.2%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$293m× (1 + 2.8%) ÷ (7.2%– 2.8%) = US$6.7b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$6.7b÷ ( 1 + 7.2%)10= US$3.3b The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$5.1b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$114, the company appears quite undervalued at a 31% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Dorman Products as potential 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 accounts for debt. In this calculation we've used 7.2%, which is based on a levered beta of 1.033. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. See our latest analysis for Dorman Products Strength Earnings growth over the past year exceeded the industry. Debt is not viewed as a risk. Weakness No major weaknesses identified for DORM. Opportunity Annual earnings are forecast to grow for the next 2 years. Trading below our estimate of fair value by more than 20%. Threat Annual earnings are forecast to grow slower than the American market. Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Why is the intrinsic value higher than the current share price? For Dorman Products, we've put together three relevant aspects you should further examine: Risks: We feel that you should assess the 1 warning sign for Dorman Products we've flagged before making an investment in the company. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for DORM's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NASDAQGS every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
Yahoo
17-03-2025
- Business
- Yahoo
Dorman Products, Inc.'s (NASDAQ:DORM) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?
Dorman Products (NASDAQ:DORM) has had a rough three months with its share price down 4.9%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Dorman Products' ROE today. Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity. See our latest analysis for Dorman Products ROE can be calculated by using the formula: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for Dorman Products is: 15% = US$190m ÷ US$1.3b (Based on the trailing twelve months to December 2024). The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.15 in profit. So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features. To start with, Dorman Products' ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 11%. This certainly adds some context to Dorman Products' decent 12% net income growth seen over the past five years. We then performed a comparison between Dorman Products' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 12% in the same 5-year period. Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for DORM? You can find out in our latest intrinsic value infographic research report. Given that Dorman Products doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business. On the whole, we feel that Dorman Products' performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Yahoo
31-01-2025
- Business
- Yahoo
Here's Why We Think Dorman Products (NASDAQ:DORM) Is Well Worth Watching
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up. If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Dorman Products (NASDAQ:DORM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Dorman Products with the means to add long-term value to shareholders. View our latest analysis for Dorman Products The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years Dorman Products grew its EPS by 13% per year. That growth rate is fairly good, assuming the company can keep it up. It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While revenue is looking a bit flat, the good news is EBIT margins improved by 5.4 percentage points to 17%, in the last twelve months. That's a real positive. You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers. The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Dorman Products' future EPS 100% free. It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Shareholders will be pleased by the fact that insiders own Dorman Products shares worth a considerable sum. We note that their impressive stake in the company is worth US$423m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future. It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Dorman Products, with market caps between US$2.0b and US$6.4b, is around US$6.7m. The Dorman Products CEO received US$4.2m in compensation for the year ending December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making. One positive for Dorman Products is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Dorman Products, but the pleasant picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. We should say that we've discovered 1 warning sign for Dorman Products that you should be aware of before investing here. There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by significant insider holdings. Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
