Last week I manage to complete my initial discounted cash flow (DCF) valuation on the company DreamWorks Animation. According to my analysis DWA is worth between 1.4B and 4.82B dollars. As of today it has a market cap of 3.71B. This exercise reiterated that DCF valuation is more of an art than a science.
Why do I like DWA as an investment? There are a number of reasons. The current market cap is quite small. In general, it is easier to go from 3.71B to 7B when compared against going from 100B to 200B. It produces a single product - Movies. This focus on a single product makes it easier to understand in terms of how it makes money. Contrast this point with trying to figure out how GE makes money. It makes a product that is consumed by practically everybody on the planet. Movies have universal appeal. It has a single competitor - Pixar animation from Disney. Finally, it is a potential takeover candidate. It will most likely be acquired by one of the larger studios; similar to the acquisition of Pixar by Disney.
No comments:
Post a Comment