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Case: Valuing FPT Corporation

FPT Corporation is Vietnam’s leading information-technology and software-services group, reporting revenue of approximately VND 62 trillion (FY2024) on the back of fast-growing IT services and international expansion. A high-growth firm cannot be squeezed into a single constant growth rate, so this case uses a two or three-stage DCF. An explicit high-growth stage gives way through a transition to a mature stage, with the excess return fading over a finite competitive-advantage period rather than lasting forever. Reinvestment ties growth to value, since growth funded at returns above the cost of capital creates value while growth at lower returns destroys it. A relative P/E cross-check guards the headline DCF.

Why it matters

Young, fast-growing companies break the Gordon model because no single growth rate describes both their explosive present and their eventual maturity. The fix is to model growth in stages. High growth now, a transition as the law of large numbers bites, then a steady mature rate. The crucial honesty is the fade. No firm earns returns above its cost of capital forever, because success attracts competition, so the excess return should decay over a defined competitive-advantage period. Linking growth to reinvestment keeps the story consistent, since you cannot assume rapid growth without funding the investment that produces it. A relative multiple keeps the optimism in check.

Formulas

Two-stage DCF value
V0=∑t=1nFCFFt(1+WACC)t+1(1+WACC)n⋅FCFFn+1WACC−gstableV_0 = \displaystyle\sum_{t=1}^{n} \dfrac{\text{FCFF}_t}{(1 + \text{WACC})^t} + \dfrac{1}{(1 + \text{WACC})^n}\cdot\dfrac{\text{FCFF}_{n+1}}{\text{WACC} - g_{\text{stable}}}
An explicit high-growth stage of n years is discounted year by year, then a stable-growth perpetuity takes over from year n+1 once the firm has matured.
Growth, reinvestment and value creation
g=Reinvestment rate×ROICg = \text{Reinvestment rate} \times \text{ROIC}
Growth is the product of how much the firm reinvests and the return it earns on that investment. Growth creates value only while ROIC exceeds the WACC, the engine of the competitive-advantage period.

Worked examples

Scenario

FPT reported revenue of approximately VND 62 trillion (FY2024). For illustration only, assume free cash flow to the firm grows at 20 percent for five years, then fades to a stable 4 percent, with a WACC of 12 percent. Why is a single-stage model wrong here, and what does the staged approach capture?

Solution

These growth rates are illustrative and anchored only to the real revenue scale of about VND 62 trillion. A single-stage Gordon model with g near 12 percent would explode, since the denominator WACC minus g collapses toward zero, and any g above the WACC produces a meaningless negative value. The two-stage model avoids this by discounting an explicit five-year high-growth phase at 20 percent, then capitalising a stable perpetuity at the mature 4 percent rate from year six. The competitive-advantage period is the reason the 20 percent cannot last. As rivals enter the IT-services market, the excess return fades toward the cost of capital, so the high-growth window is finite by design. Reinvestment keeps it honest, since 20 percent growth must be funded by investment earning a return above the 12 percent WACC, otherwise the growth would destroy value rather than create it. A relative P/E against comparable IT-services firms then sanity-checks the staged DCF.

NoteThe growth rates, fade and WACC are illustrative and chosen to show the staged method. Only the VND 62 trillion revenue scale is a reported figure. No live multiple, beta or share price is stated.

Common mistakes

  • ✗A high-growth firm can be valued with one constant growth rate. A single-stage model with a growth rate near or above the WACC breaks down, which is why staged growth is needed.
  • ✗Excess returns and rapid growth last forever. Competition erodes excess returns, so the competitive-advantage period is finite and the model should let growth fade to a stable rate.
  • ✗Growth always creates value. Growth creates value only when the return on reinvestment exceeds the cost of capital. Growth funded at lower returns destroys value.
  • ✗A staged DCF needs no market reality check. A relative multiple against peers catches a DCF whose growth assumptions have drifted into territory the market does not support.

Revision bullets

  • •FPT is a high-growth IT-services group, revenue about VND 62 trillion (FY2024)
  • •High growth needs a two or three-stage DCF, not a single growth rate
  • •An explicit high-growth stage transitions to a stable mature stage
  • •Excess returns fade over a finite competitive-advantage period
  • •Growth equals reinvestment rate times ROIC, valuable only when ROIC beats WACC
  • •A relative P/E cross-check disciplines the staged DCF

Quick check

Why is a single-stage Gordon model unsuitable for a fast-growing firm like FPT?

In the staged valuation, growth funded by reinvestment creates value only when

Connected topics

Value DriversCAP and FadeP/E RatioMultiples vs DCFMulti-Stage DCF

Sources

  1. FPT Corporation (2024)
    FPT Corporation. FY2024 Annual Report.
    Source for the revenue scale of approximately VND 62 trillion. All growth rates, multiples and valuations in this case are illustrative.
  2. Titman & Martin, Ch. 9
    Titman, S., & Martin, J. D. Valuation: The Art and Science of Corporate Investment Decisions. Pearson.
    Grounds the multi-stage enterprise DCF and the link between growth, reinvestment and value.
  3. Damodaran on growth and stable-state fade
    Damodaran, A. Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.
    Develops two and three-stage models and the fading of excess returns over a finite competitive-advantage period.
How to cite this page
Dr. Phil's Quant Lab. (2026). Case: Valuing FPT Corporation. Derivatives Atlas. https://phucnguyenvan.com/concept/sabv-case-fpt
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