<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> American Resources' estimated fair value is US$4.44 based on 2 Stage Free Cash Flow to Equity </li> <li> American Resources' US$2.63 share price signals that it might be 41% undervalued </li> <li>  Analyst price target for AREC is US$6.75, which is 52% above our fair value estimate </li> </ul><p>Today we'll do a simple run through of a valuation method used to estimate the attractiveness of American Resources Corporation (NASDAQ:AREC) as an investment opportunity  by taking the expected future cash flows and discounting them to today's value.  Our analysis will employ the Discounted Cash Flow (DCF) model.  Don't get put off by the jargon, the math behind it is actually quite straightforward.</p><p> 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.  For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. </p><p>We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.</p><h2> The Method </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.  To begin with, we have to get estimates of the next ten years of cash flows.   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 need to discount the sum of these future cash flows to arrive at a present value estimate: </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 ($, Millions) </strong></td><td>-US$39.7m</td><td>-US$23.1m</td><td>-US$75.3m</td><td>US$18.6m</td><td>US$22.9m</td><td>US$26.8m</td><td>US$30.2m</td><td>US$33.3m</td><td>US$35.9m</td><td>US$38.3m</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x2</td><td>Analyst x2</td><td>Analyst x2</td><td>Analyst x2</td><td>Est @ 22.90%</td><td>Est @ 17.01%</td><td>Est @ 12.88%</td><td>Est @ 10.00%</td><td>Est @ 7.98%</td><td>Est @ 6.56%</td></tr><tr><td><strong> Present Value ($, Millions) Discounted @ 7.5% </strong></td><td>-US$36.9</td><td>-US$20.0</td><td>-US$60.5</td><td>US$13.9</td><td>US$15.9</td><td>US$17.3</td><td>US$18.2</td><td>US$18.6</td><td>US$18.7</td><td>US$18.5</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> = US$3.6m</p><p> 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 (3.3%) 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 7.5%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = US$38m× (1 + 3.3%) ÷ (7.5%– 3.3%) = US$923m</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= US$923m÷ ( 1 + 7.5%)<sup>10</sup>= US$446m</p><p> The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is US$450m.  In the final step we divide the equity value by the number of shares outstanding.  Compared to the current share price of US$2.6, the company appears   quite undervalued    at a 41% discount to where the stock price trades currently.   Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/228580381-dcf-1-dark-2/1766585688400?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/228580381-dcf-1-dark-2/1766585688400"/><figcaption>NasdaqCM:AREC Discounted Cash Flow December 24th 2025</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.  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 American Resources 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 7.5%, which is based on a levered beta of 0.926. 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 American Resources </span></p><h3>SWOT Analysis for American Resources</h3><div><div><p><strong>Strength</strong></p><ul><li>Debt is well covered by earnings.</li></ul> <ul>Balance sheet summary for AREC.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Shareholders have been diluted in the past year.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Trading below our estimate of fair value by more than 20%.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li>Debt is not well covered by operating cash flow.</li></ul><ul><li>Has less than 3 years of cash runway based on current free cash flow.</li></ul><ul><li>Total liabilities exceed total assets, which raises the risk of financial distress.</li></ul> <ul>Is AREC well equipped to handle threats?</ul> </div></div><h2> Moving On: </h2><p> Valuation is only one side of the coin in terms of building your investment thesis, and it  is only one of many factors that you need to assess for 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 instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   Can we work out why the company is trading at a discount to intrinsic value?   For American Resources, there are three  pertinent  factors  you should look at: </p><ol> <li> <strong>Risks</strong>: For instance, we've identified  <strong> 4 warning signs for American Resources</strong>  that you should be aware of. </li> <li><strong>Future Earnings</strong>: How does AREC'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 Solid Businesses</strong>: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! </li> </ol><p> 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.</p><div><p>Mobile Infrastructure for Defense and Disaster</p><p>The next wave in robotics isn't humanoid. Its fully autonomous towers delivering 5G, ISR, and radar in under 30 minutes, anywhere.</p><p>Get the investor briefing before the next round of contracts</p><p><span>Sponsored On Behalf of CiTech</span></p></div></div></div>

AREC

<p>American Resources Corporation (NASDAQ:AREC) is estimated to be trading at a 41% discount based on a fair value of $4.44 using a 2-stage Free Cash Flow to Equity model. Analysts target a price of $6.75, 52% above the fair value estimate. The DCF model considers future cash flows and discounts them to present value, highlighting the stock's undervaluation. However, valuations are imprecise and should be recalculated with different inputs for accuracy.</p>

Is American Resources Corporation (NASDAQ:AREC) Trading At A 41% Discount?