What is HNST's Intrinsic value?

Honest Company Inc (HNST) Intrinsic Value Analysis

Executive Summary

As of June 1, 2025, Honest Company Inc's estimated intrinsic value ranges from $4.48 to $13.88 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $13.88 +176.0%
Discounted Cash Flow (5Y) $8.19 +62.8%
Dividend Discount Model (Multi-Stage) $4.48 -10.9%

Is Honest Company Inc (HNST) undervalued or overvalued?

With the current market price at $5.03, 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 Honest Company 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 0.93 1.11
Cost of equity 8.1% 11.1%
Cost of debt 5.0% 5.0%
Tax rate 0.2% 0.4%
Debt/Equity ratio 1 1
After-tax WACC 6.6% 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: 7.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $378 (FY12-2024) to $776 (FY12-2034)
  • Net profit margin expansion from -2% to 15%
  • Capital expenditures maintained at approximately 0% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $8 $830M 86.2%
10-Year Growth $14 $1,458M 75.6%
5-Year EBITDA $5 $500M 77.0%
10-Year EBITDA $9 $924M 61.5%

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: 9.6%
  • Long-term growth rate: 3.0%
  • Fair value: $4.48 (-10.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.1% (Low) to 8.1% (High)
  • Long-term growth rate: 2.0% (Low) to 4.0% (High)
  • Fair value range: $(0) to $(0)
  • Selected fair value: $-0.20 (-103.9% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $555M
Enterprise Value $482M
Trailing P/E 0.00
Forward P/E 91.83
Trailing EV/EBITDA 10.80
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 1.17

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% $4.17
Discounted Cash Flow (5Y) 33% $2.05
Dividend Discount Model (Multi-Stage) 27% $0.90
Weighted Average 100% $9.48

Investment Conclusion

Based on our comprehensive valuation analysis, Honest Company Inc's weighted average intrinsic value is $9.48, which is approximately 88.4% above the current market price of $5.03.

Key investment considerations:

  • Strong projected earnings growth (-2% to 15% margin)
  • Consistent cash flow generation

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