Valuation course · Lesson 9 of 10
Value per share depends on what happens to the shares.
A DCF values the whole business. Three steps turn that into a value per share: subtract the debt, count all the shares, and check what the company does with its cash.
Subtract net debt
The business is worth $2,492 million. The lenders have the first claim. Example Co. has $250 million of debt and $150 million of cash, so net debt is $100 million. The owners get the rest, $2,392 million.
Count all the shares
Stock pay adds shares every year. If the share count rises 2% with no change in the business, the value per share falls from $23.92 to $23.45. Use the latest share count from the annual or quarterly report, and add the options and stock units that will vest.
Buybacks at the right price
| Buyback price | Against our value | Value per share left | Change |
|---|---|---|---|
| $19.14 | -20% | $24.81 | +3.7% |
| $23.92 | 0% | $23.92 | 0% |
| $29.90 | +25% | $23.26 | -2.8% |
The table shows a $300 million buyback paid from cash. Below our value, each share that is left gains. At our value, nothing changes. Above our value, each share that is left loses.
Last year, Example Co. bought back $30 million of stock at $30. That is above our value, so on our numbers it took value from the owners who stayed. Check the price that a company pays, not only the size of the buyback.
Key points
- Subtract net debt to get from the business to the equity.
- Stock pay adds shares. Count them.
- A buyback adds value only when the price is below the value.