What is XNET's Intrinsic value?

Xunlei Ltd (XNET) Intrinsic Value Analysis

Executive Summary

As of May 27, 2025, Xunlei Ltd's estimated intrinsic value ranges from $1.29 to $7.04 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $3.68 -35.8%
Discounted Cash Flow (5Y) $1.29 -77.5%
Dividend Discount Model (Multi-Stage) $2.65 -53.8%
Earnings Power Value $7.04 +22.9%

Is Xunlei Ltd (XNET) undervalued or overvalued?

With the current market price at $5.73, 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 Xunlei Ltd'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
  3. 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 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.35 0.5
Cost of equity 5.5% 7.7%
Cost of debt 4.0% 4.5%
Tax rate 13.7% 18.9%
Debt/Equity ratio 0.09 0.09
After-tax WACC 5.3% 7.3%

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: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $323 (FY12-2024) to $588 (FY12-2034)
  • Net profit margin expansion from 0% to 3%
  • Capital expenditures maintained at approximately 6% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $1 $110M 96.7%
10-Year Growth $4 $261M 80.2%
5-Year EBITDA $5 $350M 99.0%
10-Year EBITDA $7 $459M 88.7%

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: 6.6%
  • Long-term growth rate: 2.0%
  • Fair value: $2.65 (-53.8% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.7% (Low) to 5.5% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $(1) to $(2)
  • Selected fair value: $-1.20 (-120.9% 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 $29M
Discount Rate (WACC) 7.3% - 5.3%
Enterprise Value $397M - $550M
Net Debt $28M
Equity Value $369M - $522M
Outstanding Shares 63M
Fair Value $6 - $8
Selected Fair Value $7.04

Key Financial Metrics

Metric Value
Market Capitalization $362M
Enterprise Value $390M
Trailing P/E 0.00
Forward P/E 516.91
Trailing EV/EBITDA 14.70
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.08

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) 35% $1.10
Discounted Cash Flow (5Y) 29% $0.32
Dividend Discount Model (Multi-Stage) 24% $0.53
Earnings Power Value 12% $0.70
Weighted Average 100% $3.13

Investment Conclusion

Based on our comprehensive valuation analysis, Xunlei Ltd's weighted average intrinsic value is $3.13, which is approximately 45.4% below the current market price of $5.73.

Key investment considerations:

  • Strong projected earnings growth (0% to 3% margin)
  • Conservative capital structure (Debt/Equity of 0.08)

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