Oatly’s Debt Gets Real While Its Profits Stay Adjusted (NASDAQ:OTLY)

Core Viewpoint - Oatly Group AB is perceived as being in a vulnerable position, akin to "swimming naked," as it faces scrutiny regarding its valuation and financial health [1]. Valuation Methods - Various methods exist for sell-side analysts to determine a company's fair value, including DCF, multiples approach, and reverse valuation, each with its own strengths and weaknesses [1]. - The DCF method is complex and can introduce biases, while the multiples approach relies on the assumption that peer companies are fairly priced, which is often not the case [1]. - Reverse valuation starts from the market price and discount rate, revealing the free cash flow assumptions embedded in the price, providing a more straightforward assessment of market beliefs [1]. Free Cash Flow Analysis - A Free Cash Flow to Equity (FCFE) model is utilized to assess what belongs to shareholders, calculated as Earnings + Amortization – CAPEX – average acquisition cost = FCFE [1]. - The analysis disregards working capital and debt changes, focusing instead on three key figures: earnings, amortization, and investments [1]. Forecasting Approach - The H-model is applied for forecasts, featuring a 10-year two-stage growth fade, with terminal growth aligned to the risk-free rate, specifically the 10-year government bond yield [1]. - All cash flows are discounted using the cost of equity, calculated as RFR × beta + 5% ERP, resulting in a clear picture of the business's true worth [1].