What is CSTL's Intrinsic value?

Castle Biosciences Inc (CSTL) Intrinsic Value Analysis

Executive Summary

As of May 27, 2025, Castle Biosciences Inc's estimated intrinsic value ranges from $9.80 to $57.14 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $49.12 +205.1%
Discounted Cash Flow (5Y) $9.80 -39.1%
Dividend Discount Model (Multi-Stage) $57.14 +254.9%

Is Castle Biosciences Inc (CSTL) undervalued or overvalued?

With the current market price at $16.10, 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 Castle Biosciences 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 0.53 0.56
Cost of equity 6.3% 8.0%
Cost of debt 7.0% 7.0%
Tax rate 2.0% 7.7%
Debt/Equity ratio 0.02 0.02
After-tax WACC 6.3% 8.0%

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: 7.1% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $332 (FY12-2024) to $1,565 (FY12-2034)
  • Net profit margin expansion from 5% to 11%
  • Capital expenditures maintained at approximately 6% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $10 $203M 96.3%
10-Year Growth $49 $1,337M 87.3%
5-Year EBITDA $24 $618M 98.8%
10-Year EBITDA $42 $1,140M 85.2%

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: 7.2%
  • Long-term growth rate: 4.0%
  • Fair value: $57.14 (254.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 8.0% (Low) to 6.3% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $(2) to $(12)
  • Selected fair value: $-7.30 (-145.3% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $464M
Enterprise Value $385M
Trailing P/E 0.00
Forward P/E 16.09
Trailing EV/EBITDA 10.60
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.02

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) 40% $14.73
Discounted Cash Flow (5Y) 33% $2.45
Dividend Discount Model (Multi-Stage) 27% $11.43
Weighted Average 100% $38.15

Investment Conclusion

Based on our comprehensive valuation analysis, Castle Biosciences Inc's weighted average intrinsic value is $38.15, which is approximately 137.0% above the current market price of $16.10.

Key investment considerations:

  • Strong projected earnings growth (5% to 11% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.02)

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