RCUS
Arcus Biosciences, Inc.
$23.43
High-Growth Software
80%
Revenue × Terminal Margin DCF
Moderate
·
Conviction
Fair Value
Trading 16.0% below fair value
You pay
$23.43
Bear
$16.29
Fair
$27.90
Bull
$42.64
Bear
$16.29
-30.5%
16% rev growth, 21% terminal margin
Fair
$27.90
+19.1%
26% rev growth, 28% terminal margin
Bull
$42.64
+82.0%
34% rev growth, 32% terminal margin
Key Value Driver
Revenue growth (26%) × margin expansion to 28%
Terminal Value % of EV
69%
Implied Market Multiple
6.0x
Summary
Our base-case estimate uses a discounted cash flow model based on revenue growth and long-run free cash flow margins. We then blend that result with the average analyst price target of $31.17 from 18 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $27.90 per share.
Warnings
Stock-based employee pay is 24% of revenue — your ownership shrinks by about 2.0% each year as new shares are issued. Our estimate already accounts for this dilution.
Our estimate assumes profit margins grow from 0% to 28% over 10 years. If that improvement stalls, the company is worth considerably less.
Gross margin of 96% means each dollar of revenue is highly profitable. As the company grows, overhead costs should shrink as a share of revenue, boosting overall profits.
Key Risks
- Current FCF misleads — the model values future margins, not today's cash
- SBC dilution is the hidden tax: 2-4% annual share growth compounds fast
- Revenue deceleration is inevitable — the question is when and how steep