Key Insights

The projected fair value for DoorDash is US$348 based on 2 Stage Free Cash Flow to Equity DoorDash's US$206 share price signals that it might be 41% undervalued The US$217 analyst price target for DASH is 38% less than our estimate of fair value

How far off is DoorDash, Inc. (NASDAQ:DASH) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. There's really not all that much to it, even though it might appear quite complex.

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

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The Model

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) forecast

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF ($, Millions)  US$2.34b US$3.20b US$4.12b US$5.39b US$6.57b US$7.46b US$8.23b US$8.90b US$9.49b US$10.0b Growth Rate Estimate Source Analyst x9 Analyst x10 Analyst x5 Analyst x3 Analyst x2 Est @ 13.59% Est @ 10.40% Est @ 8.16% Est @ 6.59% Est @ 5.50% Present Value ($, Millions) Discounted @ 7.6%  US$2.2k US$2.8k US$3.3k US$4.0k US$4.6k US$4.8k US$4.9k US$5.0k US$4.9k US$4.8k

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$41b

Story Continues

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.9%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.6%.

Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$10b× (1 + 2.9%) ÷ (7.6%– 2.9%) = US$221b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$221b÷ ( 1 + 7.6%)10= US$106b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$147b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of US$206, the company appears quite good value at a 41% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.NasdaqGS:DASH Discounted Cash Flow May 24th 2025

Important Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at DoorDash as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.6%, which is based on a levered beta of 1.078. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

See our latest analysis for DoorDash

SWOT Analysis for DoorDash

Strength

Currently debt free.

Weakness

No major weaknesses identified for DASH.

Opportunity

Annual earnings are forecast to grow faster than the American market.

Trading below our estimate of fair value by more than 20%.

Threat

Revenue is forecast to grow slower than 20% per year.

Next Steps:

Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. It's not possible to obtain a foolproof valuation with a DCF model. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Why is the intrinsic value higher than the current share price? For DoorDash, we've put together three essential factors you should further examine:

Risks: You should be aware of the 1 warning sign for DoorDash we've uncovered before considering an investment in the company. Future Earnings: How does DASH's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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