In the past, I have complained about people posting investment analysis without real analysis – that is without a complete DCF model. Unfortunately, this criticism applies to me as well. Therefore, in the next few week s, I will be posting Excel versions of DCF models for companies that I have discussed on this blog.
Here is one for Fitbit. Notice that my assumptions are quite pessimistic. For instance, the company is assumed to make no profit for the next three years. After that, it turns marginally profitable but is able to grow only at the rate of inflation. With these assumptions the DCF value comes to $5.31 which is almost equal to the market price. This gives you a good feeling for what the market is expecting for Fitbit.
Remember that the cash flows in a DCF model are statistical expectations. As sucy, they reflect a number of future possible scenarios weighted by the probability of those scenarios. In one such scenario the company may do markedly better than the projection, but in another it may fritter away its cash and go backrupt.