Valuation
To arrive at our price target for Fosrich, we utilized a weighted approach using a justified price-to-earnings (P/E) model as well as an approach in which a fair price is derived from a target forward Price/Earnings-to-Growth ratio. Our estimate for the 2022 Financial year-end eps, considering the growth in the first half of 2022 earnings and our expectations for the performance for the rest of the year, amounted to $0.11. To arrive at a discount rate, we utilized the capital asset pricing model, which gave us an outturn of 17.93%. Our expectation for the long-term growth rate came in at 13.67%, taking into consideration, factors including the company’s profit margin, leverage and asset utilization. While this may seem high on the surface, it is reflective of expectations of substantial front-loaded growth in the coming years. This resulted in a justified P/E ratio of 23.51x, giving us a value of $2.58; additionally, using projected 2022 earnings, the average 5-year earnings growth rate was calculated at 43.52% for the company. Given a target PEG ratio of 1.00x, we derived a fair price using projected 2022 earnings of $4.77. A simple average of these two methods gives us a target price of $3.67, representing an 8.98% downside from the last closing price of $4.00. The company currently trades at a trailing P/E multiple of 52.49x, more than double the junior market average of ~22.13x. However, based on its current trading price along with our expected EPS the forward P/E is estimated at 36.50x. With consideration to the expected return along with other factors stated above, we recommend investors MARKETWEIGHT FOSRICH
| Stock | FOSRICH |
|---|---|
| 52 Week High | J$5.12 |
| 52 Week Low | J$0.80 |
| YTD Return | 441.99% |
| Dividend Yield | 1.10% |
| Target Price | J$3.67 |
| YTD Return | 0.21% |
| Potential Return | -8.18% |
| 52 Week Low | J$25.00 |
| Trailing P/E | 52.49x |
| Trailing P/B | 12.02x |
| Forward P/E | 36.50x |
| Total Return | -8.18% |
| Recommendation | MARKETWEIGHT |
As at September 5, 2022
Fosrich Company Limited | Equity Analysis
