Viant Technology Inc. (NASDAQ:DSP)'s specific calculations suggest that the company is undervalued by 42%

key insights

• Viant Technology's estimated fair value is $14.65 based on two-stage free cash flow into the stock.

• Current stock price of $8.50 suggests Viant Technology may be undervalued by 42%

• The analyst price target for DSP is US$12.17, 17% below our fair value estimate.

Today we will briefly explain the valuation methodology used to estimate the attractiveness of Viant Technology Inc. (NASDAQ:DSP) as an investment opportunity. This is done by taking the company's expected future cash flows and discounting them to today's value. This is done using a discounted cash flow (DCF) model. Don't be put off by the jargon. The math behind it is actually quite simple.

However, keep in mind that there are many ways to estimate a company's value, and a DCF is just one method. To learn a little more about intrinsic value, read the Simply Wall St analysis model.

Check out our latest analysis for Viant Technology.

calculate numbers

We use a two-stage growth model. This means considering his two stages of company growth. In the initial stage, a company may have a higher growth rate, and in the second stage, it is usually considered to have a stable growth rate. First, you need to estimate your cash flows for the next 10 years. As analyst estimates for free cash flow are not available, we have extrapolated the previous free cash flow (FCF) from the company's last reported value. We assume that companies with shrinking free cash flow will see their rate of contraction slow, and companies with growing free cash flow will see their growth rate slow over this period. This is to reflect that growth tends to be slower in the early years than in later years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so the sum of these future cash flows must be discounted to arrive at a present value estimate.

Estimated 10-year free cash flow (FCF)

(“Est” = FCF growth rate estimated by Simply Wall St)
Present value of cash flows over 10 years (PVCF) = USD 308 million

story continues

Next, you need to calculate the terminal value, which takes into account all future cash flows over this 10-year period. The Gordon Growth formula is used to calculate the terminal value with a future annual growth rate equal to his five-year average of 2.3% on the 10-year Treasury yield. The final cash flows are discounted to today's value at a cost of equity of 6.9%.

Terminal value (TV)=FCF₂₀₃₃ × (1 + g) ÷ (r – g) = USD 54 million × (1 + 2.3%) ÷ (6.9% – 2.3%) = USD 1.2 billion

Present Value of Terminal Value (PVTV)= TV / (1 + r)^Ten= USD 1.2 billion ÷ ( 1 + 6.9%)^Ten= USD 613 million

The total value, or capital value, is the sum of the present values ​​of future cash flows, which in this case is USD 921 million. The final step is to divide the stock value by the number of shares outstanding. Compared to the current share price of $8.50, the company appears to be significantly undervalued at a 42% discount to its current share price. However, evaluation is an imprecise measure and is more like a telescope. After moving a few degrees, you will eventually reach another galaxy. Please keep this in mind.

Important prerequisites

Now, the most important input to discounted cash flows is the discount rate and, of course, the actual cash flows. You are not required to agree to these inputs. I encourage you to redo the calculations yourself and give it a try. Additionally, DCF does not give a complete picture of a company's potential performance because it does not take into account the cyclicality of the industry or the company's future capital requirements. Given that we are considering Viant Technology as a potential shareholder, the cost of capital is used as the discount rate, rather than the cost of capital factoring in debt (or weighted average cost of capital, WACC). For this calculation, we used 6.9% based on a leverage beta of 1.005. Beta is a measure of a stock's volatility in comparison to the market as a whole. Beta values ​​are taken from industry average beta values ​​for globally comparable companies. This value is constrained to a range of 0.8 to 2.0, which is a reasonable range for stable businesses.

to the next:

Valuation is only one side of the coin when building an investment thesis, and it shouldn't be the only metric you look at when researching a company. The DCF model is not the ultimate in investment valuation. If possible, it's a good idea to apply different cases and assumptions and see how they affect the company's valuation. For example, changes in a company's cost of equity or risk-free rate can have a significant impact on valuations. Why is the stock price below its intrinsic value? He put together three factors that need further investigation.

1. financial health: Is DSP's balance sheet healthy? Check out our free balance sheet analysis, including 6 quick checks on key factors like leverage and risk.

2. future earnings: How does DSP's growth rate compare to its peers and the broader market? Explore the analyst consensus numbers for the coming years in more detail by interacting with the free Analyst Growth Expectations chart.

3. Other high quality alternatives: Do you like a good all-rounder? Explore our interactive list of quality stocks to figure out what else you're missing.

PS. The Simply Wall St app provides daily discounted cash flow valuations for all stocks on the NASDAQGS. If you want to know the calculations for other stocks, please search here.

Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.