RE:Chris Thompson Price Target Raised $3.75: 230% Upside At the risk of throwing cold water on this:
1) this 'research' is paid for by DCM... this is buried in the fine print at the end of the report. Not ideal.
2) DCFs are great for predictable businesses. How anyone can predict the cash flows of DCM with any level of uncertainty is beyond me. Imagine someone tried to do this 5 years ago, 3 years ago or even 6 months ago.
3) I would argue one cannot and should not use a DCF to determine the value... but IF we are going to use it (and I do see this is but 1 of 3 methods used) then the discount rate should match the risk. 10% is a ridiculously low discount rate to use for a business that has yet to show us it deserves to even have us predict future cash flows. I would use 20-30% and that might even be conservative.
I'm not going to argue that DCM isn't undervalued here but I am simply pointing out my opinions of this 'research' and basis for valuation. The facts remain that IF DCM can stop the revenue bleed, increase margins, stop the parade of restructuring charges (they aren't non-recurring if they keep recurring', reduce debt, avoid temptation to acquire for the sake of acquiring and stop increasing the share count then we will be fine. This is a lot of IF's.