Index removals put Formula One Group in focus

Formula One Group (FWON.K) has been dropped from several Russell growth and midcap benchmark indexes, a shift that can prompt forced rebalancing by index-tracking funds and recalibrate how some investors view the stock.

Despite being removed from several Russell growth and midcap indexes, Formula One Group’s recent trading has been firm. The 7 day share price return is 6.87% and the 30 day share price return is 13.37%, while the 1 year total shareholder return is down 4.37% against a 5 year total shareholder return of 108.52%. This suggests long term holders have seen gains even as recent momentum has cooled.

If index changes have you reassessing your watchlist, this can be a useful moment to broaden your search and check out 20 top founder-led companies

With Formula One Group trading around $98.50, sitting at an estimated 7% discount to one intrinsic value estimate and about 18% below some analyst targets, should you see underappreciated value here, or assume the market is already pricing in future growth?

Most Popular Narrative: 84.6% Overvalued

At around $98.50 per share versus a narrative fair value of $53.37, the most followed view on Formula One Group sees the current price well above that estimate. This frames today’s rally against a much lower long term anchor.

And that is the core narrative: at the moment, Formula One is riding high and arguably the most popular it has ever been. But this popularity, the movies, the Netflix shows, are hiding real questions bubbling underneath the surface about what actually is Formula One, and the answers to that question can have a real impact on what Formula One looks like in the future, for better or worse.

Want to see how this narrative gets from a global media phenomenon to a much lower fair value per share? The key ingredients are growth assumptions, profitability expectations and the future earnings multiple baked into the model, all pulling in one direction without being fully unpacked here.

Result: Fair Value of $53.37 (OVERVALUED)

However, this overvalued narrative could be challenged if Formula One Group sustains audience interest around new regulations, or if revenue and net income trends stay resilient.

Another view on Formula One Group’s value

That overvalued narrative hinges on a fair value of $53.37, but our DCF model points in a different direction. On this view, Formula One Group at $98.50 is trading about 7.2% below an estimated future cash flow value of $106.16. This raises a different question for you as an investor.

To understand how a cash flow based approach can sit at odds with a narrative fair value that is almost half the current share price, it helps to see the moving parts behind the SWS DCF model, including growth, margins and discount rates, side by side with the share price history. Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Formula One Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 43 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Seeing mixed signals around Formula One Group’s value and risk profile? Take a closer look at the data now and shape your own view with the 2 key rewards and 2 important warning signs

Looking for more investment ideas beyond Formula One Group?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.