A Discounted Cash Flow Framework For Xpel

My DCF models value Xpel between $80 and $100 per share vs a $60 current share price.

Xpel Inc (NASDAQ: XPEL, $1.65B market cap) is a leading provider of paint protection film to automobile installers and dealerships. As newsletter subscribers know, it has been one of my top holdings for several years, including from when I originally highlighted the stock on this newsletter in September 2020 at around $25 per share.

Today, the stock trades for just under $60. Up substantially over the last couple of years, but flat over 1 year and down an uncomfortably large 40% from the all-time highs of just over $100 per share.

Nonetheless, I maintain that this stock is undervalued significantly at $60 per share.

This newsletter has a wide degree of subscribers ranging from amateur DIY investors to sophisticated retail investors to professional money managers. Thus, for those unfamiliar with the concept of a DCF (Discounted Cash Flow) model, it may be helpful to briefly describe what a DCF model does.

A stock’s value today is ultimately the present value of all future cash flows to investors. If we knew the exact cash flows returned to a shareholder forever going forward, one could come up with an exact price per share that any particular stock is worth today. There would be no market. Fortunately, for the savvy investor, this is not the case. We do not know the future cash flow streams of businesses, but we can estimate them. This is what a DCF model attempts to do. It forecasts cash flows into the future and discounts them back to the present to determine a fair or intrinsic value per share today.

Of course, no DCF is ever perfect. In fact, there is a huge variety of ways to arrive at very different prices with just small changes in a DCF model. So a DCF model is the most precise, but perhaps least accurate way to value a stock. Nonetheless, I do believe that it is a useful tool, especially when one believes their own forecasts are more likely to occur than consensus analyst estimates. Based on my research, I believe this is currently the case for Xpel.

My 5-year unlevered DCF values the company at $80.62 per share with an 8% discount rate and a 3% perpetual growth rate, while my 10-year unlevered DCF values the company at $98.56 per share based on a 9% discount rate and a 2% perpetual growth rate. This represents 30% upside on the low end, and nearly 70% upside to fair value at the high end.

Paid subscribers get full access to both models.

Let’s see how we get there.