What is SOGO's Intrinsic value?

Sogou Inc (SOGO) Intrinsic Value Analysis

Executive Summary

As of June 6, 2025, Sogou Inc's estimated intrinsic value ranges from $0.25 to $0.41 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Stable) $0.41 -95.5%
Earnings Power Value $0.25 -97.3%

Is Sogou Inc (SOGO) undervalued or overvalued?

With the current market price at $8.95, 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 Sogou Inc's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  2. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

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 3.2% 3.7%
Equity market risk premium 4.2% 5.2%
Adjusted beta 0.89 1.15
Cost of equity 6.9% 10.2%
Cost of debt 5.0% 5.0%
Tax rate 1.8% 2.5%
Debt/Equity ratio 1 1
After-tax WACC 5.9% 7.5%

Valuation Methods

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: 8.6%
  • Long-term growth rate: 3.5%
  • Fair value: $-3.68 (-141.1% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.2% (Low) to 6.9% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $0 to $1
  • Selected fair value: $0.41 (-95.5% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $(20)M
Discount Rate (WACC) 7.5% - 5.9%
Enterprise Value $(265)M - $(337)M
Net Debt $(396)M
Equity Value $131M - $59M
Outstanding Shares 386M
Fair Value $0 - $0
Selected Fair Value $0.25

Key Financial Metrics

Metric Value
Market Capitalization $3452M
Enterprise Value $3056M
Trailing P/E 492.92
Forward P/E 507.41
Trailing EV/EBITDA 9.30
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.90

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
Dividend Discount Model (Stable) 60% $0.06
Earnings Power Value 40% $0.02
Weighted Average 100% $0.34

Investment Conclusion

Based on our comprehensive valuation analysis, Sogou Inc's weighted average intrinsic value is $0.34, which is approximately 96.2% below the current market price of $8.95.

Key investment considerations:

  • Strong projected earnings growth (-12% to -4% margin)
  • Consistent cash flow generation

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