What is AVO's Intrinsic value?

Mission Produce Inc (AVO) Intrinsic Value Analysis

Executive Summary

As of May 23, 2025, Mission Produce Inc's estimated intrinsic value ranges from $14.34 to $33.38 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $18.31 +79.1%
Discounted Cash Flow (5Y) $16.30 +59.5%
Dividend Discount Model (Multi-Stage) $14.34 +40.3%
Dividend Discount Model (Stable) $33.38 +226.6%

Is Mission Produce Inc (AVO) undervalued or overvalued?

With the current market price at $10.22, the stock appears to be significantly undervalued.

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 Mission Produce 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 0.33 0.41
Cost of equity 5.4% 7.2%
Cost of debt 5.1% 5.2%
Tax rate 31.5% 32.9%
Debt/Equity ratio 0.19 0.19
After-tax WACC 5.1% 6.6%

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: 5.8% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,235 (FY10-2024) to $1,435 (FY10-2034)
  • Net profit margin expansion from 3% to 3%
  • Capital expenditures maintained at approximately 6% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $16 $1,260M 89.1%
10-Year Growth $18 $1,403M 80.1%
5-Year EBITDA $11 $857M 83.9%
10-Year EBITDA $12 $938M 70.2%

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: 6.3%
  • Long-term growth rate: 3.5%
  • Fair value: $14.34 (40.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.2% (Low) to 5.4% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $9 to $58
  • Selected fair value: $33.38 (226.6% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $726M
Enterprise Value $829M
Trailing P/E 17.89
Forward P/E 19.50
Trailing EV/EBITDA 7.50
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.19

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% $5.49
Discounted Cash Flow (5Y) 28% $4.07
Dividend Discount Model (Multi-Stage) 22% $2.87
Dividend Discount Model (Stable) 17% $5.01
Weighted Average 100% $19.38

Investment Conclusion

Based on our comprehensive valuation analysis, Mission Produce Inc's weighted average intrinsic value is $19.38, which is approximately 89.6% above the current market price of $10.22.

Key investment considerations:

  • Strong projected earnings growth (3% to 3% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.19)

Given these factors, we believe Mission Produce Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.