Evolution AB: A Growth Stock with a Falling Stock Price
Evolution AB, a leading supplier of technology and services to the gaming industry, has seen its stock price take a hit in recent months. However, despite the downturn in the stock market, the company’s business continues to thrive and is expected to grow further.
Impressive Free Cash Flow Yield
One reason for the disconnect between the company’s strong business fundamentals and the declining stock price is the impressive free cash flow yield that Evolution AB offers. With an 8%+ free cash flow yield, the company is generating significant cash flow from its operations, making it an attractive proposition for value investors.
Buying Back Shares
Another factor that sets Evolution AB apart from many of its peers is its share buyback program. The company has announced plans to buy back up to SEK 2 billion (approximately $220 million) of its own shares, which will reduce the number of outstanding shares and increase earnings per share for existing shareholders.
Reverse DCF Valuation
Despite these strong fundamentals, the market seems to be pricing in low-single-digit free cash flow per share growth in perpetuity. This seems very pessimistic for a growth stock like Evolution AB. Using a reverse discounted cash flow (RDCF) valuation model, I estimate that the company’s free cash flow per share will grow at a rate of around 15% per year over the next five years, before settling down to a more sustainable growth rate of around 7% per year.
Based on this analysis, I believe that the market is undervaluing Evolution AB’s growth potential. The RDCF model suggests a fair value for the stock of around SEK 240 (approximately $26 per share), which is significantly higher than the current stock price.
Impact on Individual Investors
For individual investors, the falling stock price of Evolution AB presents an opportunity to buy into a high-growth company at a discounted price. With a strong business model, impressive free cash flow yield, and a share buyback program, Evolution AB is a compelling investment proposition.
Impact on the World
At a broader level, the situation with Evolution AB highlights the importance of looking beyond short-term market movements and focusing on the underlying fundamentals of a business. The declining stock price of Evolution AB may be concerning for some, but for those with a long-term investment horizon, it presents an opportunity to invest in a high-growth company at a discounted price.
Conclusion
In conclusion, the falling stock price of Evolution AB may be a cause for concern for some investors, but the company’s strong business fundamentals and impressive free cash flow yield suggest that this is a growth stock worth considering. With a share buyback program and a growth rate that is expected to exceed the market’s current expectations, Evolution AB is a compelling investment proposition for those with a long-term investment horizon.
- Evolution AB is a high-growth company with a strong business model
- The company offers an impressive free cash flow yield of over 8%
- Evolution AB is buying back shares to reduce the number of outstanding shares and increase earnings per share
- Using a reverse discounted cash flow (RDCF) valuation model, the fair value of the stock is estimated to be significantly higher than the current stock price
- The falling stock price presents an opportunity for long-term investors to buy into a high-growth company at a discounted price
