Key Takeaways:
- Figure Technology Solutions’ stock price has increased sharply in the short term, with a 27.3% return over the last 7 days and 98.2% over the last 30 days.
- The company’s valuation score is 0 out of 6, indicating potential overvaluation.
- The Excess Returns model estimates the intrinsic value of the stock to be US$15.17 per share, which is significantly lower than the current share price of US$73.91.
- The Price-to-Sales (P/S) ratio of 41.34x is higher than the industry average and peer group average.
- The company’s valuation can be better understood by creating a Narrative that links its business story to a financial forecast and fair value.
Introduction to Figure Technology Solutions’ Valuation
Figure Technology Solutions’ stock price has been on a tear lately, with a 27.3% return over the last 7 days and 98.2% over the last 30 days. This sharp increase has raised questions about the company’s valuation and whether it is offering good value or asking too much. In this article, we will delve into the company’s valuation using various methods, including the Excess Returns model and the Price-to-Sales (P/S) ratio, to determine whether the stock is overvalued or undervalued.
Valuation Using the Excess Returns Model
The Excess Returns model estimates the intrinsic value of a company by capitalizing its excess profits into an estimated per-share value. For Figure Technology Solutions, the model uses a Book Value of $5.49 per share and a Stable Book Value of $7.30 per share, both anchored to the median figures from the past 5 years. The Stable EPS input is $0.95 per share, based on the median Return on Equity, which is 12.96%. The required return for shareholders, or Cost of Equity, is set at $0.58 per share. This leaves an Excess Return of $0.37 per share, which is what this approach treats as value created over and above the cost of capital. When Simply Wall St runs these inputs through its Excess Returns framework, it arrives at an intrinsic value of US$15.17 per share. Compared with the current share price of about US$73.91, this implies the stock is 387.1% above the model’s estimate, so on this measure, it appears very expensive.
Valuation Using the Price-to-Sales Ratio
The P/S ratio can be a useful way to think about value because it links the share price to revenue. Revenue tends to be more stable than earnings in earlier stages of profitability. What counts as a reasonable P/S ratio usually reflects how fast investors expect sales to grow and how much risk they see in the business. Higher growth or lower perceived risk can support a higher multiple, while slower growth or higher risk usually points to a lower one. Figure Technology Solutions currently trades on a P/S ratio of 41.34x. That compares with a Consumer Finance industry average P/S of 1.57x and a peer group average of 2.20x, so the stock is priced at a much higher level than these simple benchmarks.
Understanding Valuation through Narratives
There is an even better way to understand valuation, which is by creating a Narrative that links a company’s business story to a financial forecast and fair value. On Simply Wall St’s Community page, millions of investors can set up a Narrative that connects a company’s business story to a financial forecast, and then to a fair value that can be compared with the current share price to help decide whether it looks like a potential buy, hold, or sell. For Figure Technology Solutions, one Narrative might see a relatively low fair value based on cautious growth and margins, while another might see a much higher fair value based on more optimistic expectations for its business model.
Conclusion and Final Thoughts
In conclusion, Figure Technology Solutions’ stock price has increased sharply in the short term, and its valuation score is 0 out of 6, indicating potential overvaluation. The Excess Returns model estimates the intrinsic value of the stock to be US$15.17 per share, which is significantly lower than the current share price of US$73.91. The P/S ratio of 41.34x is higher than the industry average and peer group average. To better understand the company’s valuation, it is recommended to create a Narrative that links its business story to a financial forecast and fair value. This approach can provide a more comprehensive understanding of the company’s valuation and help investors make informed decisions. It is essential to note that this article is general in nature and should not be considered as financial advice. Investors should always do their own research and consider their own objectives and financial situation before making any investment decisions.
