Someone asked me about the Intrinsic value of Riverstone Holdings Ltd. My previous post stated 0.5, but that was done in Jan 2015. Thought I do an update on that here (see below).
First let’s look at the estimated 5 years earning growth which is 14.90%. Let’s assume a 20% discount, the figure will be 11.92%.
Given EPS and a PE ratio, stock price can easily be calculated for any company. Using the below formula.
F = P(1+R)N where:
- F = the future EPS
- P = the starting (present) EPS (0.08)
- R = compound growth rate (11.92)
- N = number of years in the future (5)
Estimated future EPS: 0.14
I will be estimating the future PE of Riverstone Ltd to be 9.5 (See data from Morningstar below) Average of the PE from 2006 to 2014.
Future Stock Price
- P = future stock price
- EPS = future EPS
- PE = future PE
Hence future stock price of Riverstone Holdings Ltd is 9.5 x 0.14 = 1.33
- P = present (intrinsic) value
- F = future stock price (1.33)
- R = MARR (15% or 0.15)
- N = Number of years (5)
Hence, the intrinsic value of Riverstone Holdings Ltd is 0.66.
Stock price of Riverstone Holdings Ltd on 24 Aug 2015 is 1.60. There no margin of safety.