What is OOMA's Intrinsic value?

Ooma Inc (OOMA) Intrinsic Value Analysis

Executive Summary

As of May 23, 2025, Ooma Inc's estimated intrinsic value ranges from $0.07 to $1.49 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $0.07 -99.5%
Dividend Discount Model (Multi-Stage) $1.49 -88.8%

Is Ooma Inc (OOMA) undervalued or overvalued?

With the current market price at $13.36, the stock appears to be significantly overvalued.

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 Ooma 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 0.69
Cost of equity 5.4% 8.7%
Cost of debt 5.0% 5.0%
Tax rate 9.1% 20.8%
Debt/Equity ratio 1 1
After-tax WACC 5.0% 6.3%

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: 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 5.6% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $257 (FY01-2025) to $562 (FY01-2035)
  • Net profit margin expansion from -3% to 1%
  • Capital expenditures maintained at approximately 2% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $(1,234) $(87)M 76.8%
10-Year Growth $0 $(16)M 24.3%
5-Year EBITDA $1 $14M 246.1%
10-Year EBITDA $2 $29M 167.9%

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: 7.0%
  • Long-term growth rate: 3.5%
  • Fair value: $1.49 (-88.8% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 8.7% (Low) to 5.4% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $(3) to $(26)
  • Selected fair value: $-14.17 (-206.1% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $368M
Enterprise Value $350M
Trailing P/E 0.00
Forward P/E 0.00
Trailing EV/EBITDA 5.35
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 1.03

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) 60% $0.02
Dividend Discount Model (Multi-Stage) 40% $0.30
Weighted Average 100% $0.64

Investment Conclusion

Based on our comprehensive valuation analysis, Ooma Inc's weighted average intrinsic value is $0.64, which is approximately 95.2% below the current market price of $13.36.

Key investment considerations:

  • Strong projected earnings growth (-3% to 1% margin)

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