<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> The projected fair value for CAR Group is AU$30.68 based on 2 Stage Free Cash Flow to Equity </li> <li> With AU$29.70 share price, CAR Group appears to be trading close to its estimated fair value </li> <li>  The AU$38.87 analyst price target for CAR is 27% more than our estimate of fair value </li> </ul><p>Does the January share price for CAR Group Limited (ASX:CAR) reflect what it's really worth? Today, we will estimate the stock's intrinsic value  by projecting its future cash flows and then discounting them to today's value.  One way to achieve this is by employing the Discounted Cash Flow (DCF) model.  Believe it or not, it's not too difficult to follow, as you'll see from our example!</p><p> We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws.  If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. </p><p>Trump has pledged to &#34;unleash&#34; American oil and gas and these 15 US stocks have developments that are poised to benefit.</p><h2> The Calculation </h2> <p> We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate.  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.  </p><p> Generally we assume that a dollar today is more valuable than a dollar in the future,  so we discount the value of these future cash flows to their estimated value in today's dollars: </p><h4> 10-year free cash flow (FCF) forecast </h4><table><tbody><tr><td> </td><td><strong>2026</strong></td><td><strong>2027</strong></td><td><strong>2028</strong></td><td><strong>2029</strong></td><td><strong>2030</strong></td><td><strong>2031</strong></td><td><strong>2032</strong></td><td><strong>2033</strong></td><td><strong>2034</strong></td><td><strong>2035</strong></td></tr><tr><td><strong> Levered FCF (A$, Millions) </strong></td><td>AU$428.6m</td><td>AU$471.1m</td><td>AU$529.8m</td><td>AU$579.7m</td><td>AU$619.1m</td><td>AU$654.7m</td><td>AU$687.5m</td><td>AU$718.4m</td><td>AU$748.1m</td><td>AU$777.2m</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x7</td><td>Analyst x7</td><td>Analyst x7</td><td>Analyst x1</td><td>Est @ 6.79%</td><td>Est @ 5.74%</td><td>Est @ 5.01%</td><td>Est @ 4.50%</td><td>Est @ 4.14%</td><td>Est @ 3.89%</td></tr><tr><td><strong> Present Value (A$, Millions) Discounted @ 8.1% </strong></td><td>AU$396</td><td>AU$403</td><td>AU$419</td><td>AU$424</td><td>AU$419</td><td>AU$410</td><td>AU$398</td><td>AU$385</td><td>AU$371</td><td>AU$356</td></tr></tbody></table><p><i>(&#34;Est&#34; = FCF growth rate estimated by Simply Wall St)</i><br/><strong>Present Value of 10-year Cash Flow (PVCF)</strong> = AU$4.0b</p><p> The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.3%. We discount the terminal cash flows to today's value at a cost of equity of 8.1%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = AU$777m× (1 + 3.3%) ÷ (8.1%– 3.3%) = AU$17b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= AU$17b÷ ( 1 + 8.1%)<sup>10</sup>= AU$7.6b</p><p> The total value, or equity value, is then the sum of the present value of the future cash flows,  which in this case is AU$12b.  In the final step we divide the equity value by the number of shares outstanding.  Relative to the current share price of AU$29.7, the company appears   about fair value    at a 3.2% discount to where the stock price trades currently.   The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/24404490-dcf-1-dark-2/1769457655481?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="1706" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/24404490-dcf-1-dark-2/1769457655481"/><figcaption>ASX:CAR Discounted Cash Flow January 26th 2026</figcaption></figure> <h2> The Assumptions </h2><p> We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows.  If you don't agree with these result, have a go at the calculation yourself and play with the assumptions.  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 CAR Group 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 8.1%, which is based on a levered beta of 1.145. 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. </p> <p><span> View our latest analysis for CAR Group </span></p><h3>SWOT Analysis for CAR Group</h3><div><div><p><strong>Strength</strong></p><ul><li>Debt is not viewed as a risk.</li></ul> <ul>Balance sheet summary for CAR.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Earnings growth over the past year underperformed the Interactive Media and Services industry.</li></ul> <ul><li>Dividend is low compared to the top 25% of dividend payers in the Interactive Media and Services market.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Annual earnings are forecast to grow faster than the Australian market.</li></ul> <ul><li> Current share price is below our estimate of fair value.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li>Dividends are not covered by earnings.</li></ul> <ul><li>Revenue is forecast to grow slower than 20% per year.</li></ul> <ul> See CAR's dividend history.</ul> </div></div><h2> Moving On: </h2><p> Whilst important, the DCF calculation  shouldn't be the only metric you look at when researching a company.  DCF models are not the be-all and end-all of investment valuation.  Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation.  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.  For CAR Group, there are three  important  items  you should further research: </p><ol> <li> <strong>Risks</strong>: Take risks, for example - CAR Group has  <strong> 1 warning sign </strong>  we think you should be aware of. </li> <li><strong>Future Earnings</strong>: How does CAR'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.</li><li> <strong>Other High Quality Alternatives</strong>: 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! </li> </ol><p>PS. Simply Wall St updates its DCF calculation for every Australian stock every day, so if you want to find the intrinsic value of any other stock just search here.</p></div></div>

<p>The estimated fair value for CAR Group Limited (ASX:CAR) is AU$30.68, with the current share price at AU$29.70, indicating it is trading close to its fair value. Analysts have set a price target of AU$38.87, suggesting a 27% upside. The valuation is based on a two-stage discounted cash flow model, projecting future cash flows and discounting them to present value. The total equity value is estimated at AU$12 billion, with a 3.2% discount to the current share price. Assumptions in the calculation significantly impact the valuation outcome.</p>

Estimating The Fair Value Of CAR Group Limited (ASX:CAR)