Magic Software Enterprises Ltd. (MGIC) DCF Valuation & Fundamental Primer
Magic Software Enterprises Ltd. (MGIC) currently trades at $27.20 with an enterprise value of $1.39B. Our proprietary institutional model rates Magic Software Enterprises Ltd. at 77/100 (Grade: A · High-Quality Compounder). The current market price prices in an implied 5-year revenue CAGR of 8.9% vs. historical growth of 10.5% (Fairly Priced to Fundamentals).
Institutional fundamental teardown of Magic Software Enterprises Ltd. (MGIC) covering SEC 10-K/10-Q cash flow conversion, SBC dilution friction, and Reverse-DCF valuation hurdles.
Magic Software Enterprises Ltd. (MGIC) 3-Scenario DCF Valuation Range
Stress-test MGIC's 5-year growth, target FCF margin, WACC, terminal methodology, and SBC/dilution friction in real time.
Split between 5-Year Explicit Cash Flows and Discounted Terminal Value
2D Institutional Valuation Sensitivity Heatmap
Implied share price & upside/downside spread across 25 valuation states (Current Price: $27.20).
| WACC \ Terminal | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 8.5% | $32.23 +18% | $34.18 +26% | $36.46 +34% | $39.16 +44% | $42.39 +56% |
| 9.3% | $29.04 +7% | $30.58 +12% | $32.34 +19% | $34.40 +26% | $36.80 +35% |
| 10.0% | $26.41 -3% | $27.65 +2% | $29.05 +7% | $30.66 +13% | $32.51 +20% |
| 10.8% | $24.21 -11% | $25.23 -7% | $26.36 -3% | $27.64 +2% | $29.10 +7% |
| 11.5% | $22.35 -18% | $23.19 -15% | $24.12 -11% | $25.16 -7% | $26.34 -3% |
Institutional Software Quality Scorecard (77/100 · Grade A)
Strong fundamentals, above-average cash generation, and robust competitive positioning.
Strong cash conversion; 100%+ of operating profit turns into free cash
Minimal dilution friction; management compensation aligned with shareholders
Sub-par gross margins; higher cost of delivery or hardware/services mix
Positive net cash cushion; self-funding operations with zero insolvency risk
Core Investment Strengths & Moats
- High cash conversion: 100%+ of operating income converted to free cash flow
- Low dilution friction: SBC is only 0.3% of revenue
- Net cash positive: $26.6M balance sheet buffer
Key Operational & Dilution Risks
- Lower software gross margins (28.4%), indicating higher hosting or service delivery drag
Reverse-DCF Solver: What Growth is Priced Into MGIC?
Market implies 8.9% annual revenue growth over next 5 years (9.2% dilution-adjusted), in line with company run-rate.
Headline Reverse-DCF ignores Stock-Based Compensation (0.3% of revenue) and annual share dilution (0.0%/yr). Accounting for both requires 9.2% 5-year revenue CAGR to justify $27.20/sh on a true per-share economic cash flow basis.
Magic Software Enterprises Ltd. (MGIC) 5-Year Fundamental Forecast
| Statement Line Item | TTM Audited Base | TTM | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|---|---|
| Revenue | $552.5M | $552.5M | $610.3M | $674.2M | $744.7M | $822.6M | $908.6M |
| Gross Profit | $157.2M | $157.2M | $173.6M | $191.8M | $211.9M | $234.0M | $258.5M |
| Operating Income (EBIT) | $61.2M | $61.2M | $67.6M | $74.7M | $82.5M | $91.1M | $100.7M |
| Stock-Based Compensation (SBC) | $1.6M | $1.6M | $1.8M | $2.0M | $2.2M | $2.4M | $2.6M |
| Unlevered Free Cash Flow (FCF) | $73.3M | $73.3M | $81.0M | $89.5M | $98.8M | $109.2M | $120.6M |
| SBC-Adjusted True Cash Flow | $71.7M | $71.7M | $79.2M | $87.5M | $96.7M | $106.8M | $117.9M |
Software & Cloud Services Peer Comparables & Rule of 40 Regression
Rule of 40 vs. EV / Revenue Multiple Regression
OLS Fit: EV/Rev = -11.3 + 0.46 × (Rule of 40) · R² = 71%Stocks below the gold regression line trade at a discount relative to their Rule of 40 compounding efficiency.
| Company | Ticker | Market Cap | TTM Revenue | Gross Margin | FCF Margin | Rule of 40 | SBC % Rev | EV / Rev |
|---|---|---|---|---|---|---|---|---|
| Magic Software Enterprises Ltd. | MGIC | $1.34B | $552.5M | 28.4% | 13.3% | 23.7% | 0.3% | 2.4× |
| ServiceNow | NOW | $152.61B | $10.98B | 79.2% | 31.1% | 54.2% | 15.9% | 13.9× |
| Workday, Inc. | WDAY | $50.35B | $8.00B | 75.0% | 27.4% | 43.9% | 19.0% | 6.4× |
| Salesforce | CRM | $217.10B | $37.90B | 77.2% | 32.8% | 42.8% | 8.4% | 5.8× |
| Datadog | DDOG | $46.05B | $2.68B | 80.8% | 31.1% | 57.7% | 21.3% | 17.4× |
| Snowflake Inc. | SNOW | $71.79B | $3.63B | 66.5% | 25.2% | 57.7% | 40.8% | 20.0× |
| Hubspot | HUBS | $19.89B | $2.63B | 85.0% | 21.3% | 52.7% | 19.2% | 7.7× |
| Peer Cohort Median Benchmark (N=6) | 78.2% | 29.2% | 53.5% | 19.1% | 10.8× | |||
EV / Revenue Multiple Compression Stress Test
| Multiple Scenario | EV / Revenue | Implied Enterprise Value | Implied Equity Value | Implied Share Price | Delta vs Current |
|---|---|---|---|---|---|
| Current Multiple | 2.4× | $1.31B | $1.34B | $27.20 | 0.0% |
| -20% Multiple Compression | 1.9× | $1.05B | $1.07B | $21.87 | -20.0% |
| -35% Multiple Compression | 1.5× | $850.8M | $877.4M | $17.87 | -35.0% |
| Software Baseline Floor (5.0× EV/Rev) | 5.0× | $2.76B | $2.79B | $56.81 | +111.1% |
Frequently Asked Questions: Magic Software Enterprises Ltd. (MGIC) Valuation
What is Magic Software Enterprises Ltd. (MGIC)'s intrinsic DCF valuation and implied share price?
Based on audited SEC 10-K/10-Q filings and a 5-year 3-statement discounted cash flow (DCF) model, Magic Software Enterprises Ltd. (MGIC) has a Base Case implied value of $28.94 per share (with a Bear Case of $15.31 and a Bull Case of $45.47), compared to its current price of $27.20. The model discounts projected free cash flows at a 10.0% WACC and a 2.5% terminal growth rate.
What is Magic Software Enterprises Ltd. (MGIC)'s Rule of 40 score and Free Cash Flow margin?
Magic Software Enterprises Ltd. achieves a Rule of 40 score of 23.7%, combining a 10.5% revenue growth run-rate with a 13.3% TTM free cash flow margin on $552.5M in trailing twelve-month revenue. In the Software & Cloud Services peer cohort, the median Rule of 40 benchmark is 53.5%.
What revenue growth rate is priced into MGIC stock according to Reverse-DCF analysis?
At $27.20 per share (Enterprise Value of $1.31B), our Reverse-DCF solver indicates the market is pricing in a 5-year implied revenue CAGR of 8.9%, compared to Magic Software Enterprises Ltd.'s historical CAGR of 10.5%. Overall market expectations are rated as "Fairly Priced to Fundamentals".
How does Magic Software Enterprises Ltd. compare to Software & Cloud Services software peers?
Magic Software Enterprises Ltd. (MGIC) earns an institutional Software Quality Score of 77/100 (Grade A — High-Quality Compounder). Across its Software & Cloud Services peer group (NOW, WDAY, CRM, DDOG, SNOW), the cohort trades at a median EV/TTM Revenue multiple of 10.8× and a median gross margin of 78.2%.
How does Stock-Based Compensation (SBC) impact Magic Software Enterprises Ltd. (MGIC)'s valuation?
Magic Software Enterprises Ltd. recorded $1.6M in TTM stock-based compensation (0.3% of revenue). When treating SBC as a cash-equivalent compensation expense, Magic Software Enterprises Ltd.'s SBC-adjusted free cash flow yield is 5.4%, scoring 25/25 on our Shareholder Dilution Friction pillar.