Valuation and Recommendation
To arrive at a fair value estimate for the company we utilized two methods, namely a Justified Price-to-Book method and the Justified Price-to-Earnings method approach. To arrive at a discount rate, we utilized the capital asset pricing model to arrive at a discount rate of 14.53%. We calculated the company’s sustainable growth rate based on factors including the company’s net profit margin, equity multiplier, total asset turnover and retention ratio, arriving at an outturn of 7.36%. This long-term growth rate resulted in the company having a justified P/E ratio of 13.95x, giving us a price target of $4.68. Our Price to Book Valuation utilized a justified P/B of 1.38x, along with our 2023 financial year-end expected book value of $2.50. This resulted in a valuation of $3.43. Averaging our P/E and P/B estimates, we arrived at a price target of $4.06, a 54.70% upside to the May 3rd, 2023, price of $2.66, suggesting the stock is undervalued. In light of this fair value estimate and expected financial performance going forward, we recommend investors OVERWEIGHT the stock.
| Stock | LASD |
|---|---|
| Current Price | J$2.66 |
| Estimate Fair Value | J$4.06 |
| YTD Return | -17.17% |
| Trailing P/E | 7.97x |
| Forward P/E | 10.24x |
| Forward P/E | 7.93x |
| Dividend Yield | $2.20% |
| Potential Upside | 52.50% |
| Total Return | 54.70% |
| Recommendation | OVERWEIGHT |
as at May 4, 2023
Lasco Distributors Limited | Equity Analysis
