Editing Freetrade (section)

=== Relative valuation approach ===
As noted earlier in this report, research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that Stockhub suggests using to determine the estimated value of the company (the valuation based on the discounted cash flow approach can be found in the valuation section of this report); nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the relative valuation approach.

==== What's the expected return of an investment in Freetrade using the relative valuation approach? ====
Stockhub estimates that the expected return of an investment in Freetrade over the next five years is 4044%, which equates to an annual return of 111%. In other words, an £1,000 investment in the company is expected to return £5044 in five years time. The assumptions used to estimate the return figure can be found in the table below.

==== What are the assumptions used to estimate the return figure? ====
{| class="wikitable"
|+Key inputs
!Description
!Value
!Commentary
|-
|Which type of multiple do you want to use?
|Growth-adjusted EV/sales
|For the numerator, the Stockhub users believe that to account for the different financial leverage levels of its peers, it's best to use enterprise value (EV), rather than price. For the denominator, the Stockhub users believe that because it expects Freetrade to reinvest almost all of its revenue back into the business over the five year forecast period and therefore its earnings are expected to be abnormally low over the period, it's best to use sales. Accordingly, the Stockhub users suggest valuing its company using the EV/sales ratio. However, the Stockhub users think that to take into account the different business lifecycle stages of its peers, the most suitable valuation multiple to use is the growth-adjusted EV/sales multiple, rather than the EV/sales multiple.
|-
|In regards to the growth-adjusted EV/sales multiple, for the sales figure, which year to you want to use?
|Year 5
|Stockhub suggests that with sales forecast to grow exponential over the five year forecast period, it's best to use forward-looking data, rather than historic data.
In regards to the growth-adjusted EV/sales multiple, for the sales figure, Stockhub suggests that in order to account for the forecasted exponential growth of the business, it's best to use one at the end of the forecast period (i.e. Year 5).
|-
|In regards to the growth-adjusted EV/sales multiple, for the sales growth figure, which year(s) do you want to use?
|Year 6, from now
|Stockhub suggests that for the sales growth figure, it's best to use Year 6.
|-
|In regards to the growth-adjusted EV/sales multiple, what multiple figure do you want to use?
|0.19x
|In Stockhub's view, Freetrade closest peers are AJ Bell, Hargreaves Lansdown, Robinhood Markets, Inc, Avanza Bank Holding AB and The Charles Schwab Corporation.
|-
|Which financial forecasts to use?
|Stockhub
|The only available forecasts are the ones that are supplied by the Stockhub company (the forecasts can be found in the financials section of this report), so Stockhub suggests using those.
|-
|What's the current value of the Stockhub company?
|£225 million
|As at 13th June 2023, the current value of its company at £225 million.<ref name=":9">https://www.telegraph.co.uk/business/2023/06/13/freetrade-stock-trading-start-up-valuation-plunge/</ref>
|-
|Which time period do you want to use to estimate the expected return?
|Between now and five years time
|Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.
|}

==== Sensitivity analysis ====
The main inputs that result in the greatest change in the expected return of the Freetrade investment are, in order of importance (from highest to lowest):   

#The growth-adjusted EV/sales multiple (the default multiple 0.19);
#Freetrade Year 5 sales figure (the default figure is £777 million); and
#Freetrade Year 6 sales growth rate (the default rate is 63%).

The impact of a 50% change in those main inputs to the expected return of the Freetrade investment is shown in the table below.

{| class="wikitable sortable"
|+Freetrade investment expected return sensitivity analysis
!Main input
!50% worse 
!Unchanged
!50% better
|-
|The growth-adjusted EV/sales multiple
|1972%
|4044%
|6116%
|-
|Freetrade Year 5 sales figure
|1972%
|4044%
|6116%
|-
|Freetrade Year 6 sales growth rate

|1972%
|4044%
|6116%

|}