RCUS
Arcus Biosciences, Inc.
$27.37
High-Growth Software
80%
Revenue × Terminal Margin DCF
Mild
·
Conviction
Fair Value
Trading 2.1% below fair value
You pay
$27.37
Bear
$16.27
Fair
$27.96
Bull
$42.78
Bear
$16.27
-40.5%
16% rev growth, 21% terminal margin
Fair
$27.96
+2.2%
26% rev growth, 28% terminal margin
Bull
$42.78
+56.3%
34% rev growth, 32% terminal margin
Key Value Driver
Revenue growth (26%) × margin expansion to 28%
Terminal Value % of EV
69%
Implied Market Multiple
7.6x
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 $31.75 from 18 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $27.96 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