What is ACAD's Intrinsic value?

ACADIA Pharmaceuticals Inc (ACAD) Intrinsic Value Analysis

Executive Summary

As of May 24, 2025, ACADIA Pharmaceuticals Inc's estimated intrinsic value ranges from $12.26 to $31.92 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $31.92 +45.2%
Discounted Cash Flow (5Y) $28.77 +30.9%
Dividend Discount Model (Multi-Stage) $12.26 -44.2%
Dividend Discount Model (Stable) $12.26 -44.2%

Is ACADIA Pharmaceuticals Inc (ACAD) undervalued or overvalued?

With the current market price at $21.98, the stock appears to be fairly valued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate ACADIA Pharmaceuticals Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 1.39 1.51
Cost of equity 10.2% 13.3%
Cost of debt 5.0% 5.0%
Tax rate 0.8% 5.6%
Debt/Equity ratio 1 1
After-tax WACC 7.6% 9.0%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 8.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $958 (FY12-2024) to $1,634 (FY12-2034)
  • Net profit margin expansion from 24% to 27%
  • Capital expenditures maintained at approximately 2% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $29 $4,059M 74.2%
10-Year Growth $32 $4,584M 56.9%
5-Year EBITDA $27 $3,821M 72.6%
10-Year EBITDA $31 $4,409M 55.2%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 11.8%
  • Long-term growth rate: 2.0%
  • Fair value: $12.26 (-44.2% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 13.3% (Low) to 10.2% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $8 to $17
  • Selected fair value: $12.26 (-44.2% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $3678M
Enterprise Value $2922M
Trailing P/E 16.24
Forward P/E 13.72
Trailing EV/EBITDA 13.60
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.89

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 33% $9.57
Discounted Cash Flow (5Y) 28% $7.19
Dividend Discount Model (Multi-Stage) 22% $2.45
Dividend Discount Model (Stable) 17% $1.84
Weighted Average 100% $23.40

Investment Conclusion

Based on our comprehensive valuation analysis, ACADIA Pharmaceuticals Inc's weighted average intrinsic value is $23.40, which is approximately 6.5% above the current market price of $21.98.

Key investment considerations:

  • Strong projected earnings growth (24% to 27% margin)
  • Consistent cash flow generation

Given these factors, we believe ACADIA Pharmaceuticals Inc is currently fairly valued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.