You are gonna laugh but literally added a cell in the spreadsheet for EBITDA margin. In this case 10% and 15% respectively. I did not calculate the margin as it's an input variable the CEO is targeting for 2024. No multiples used, just a quick DCF.  

Yea the 15% discount rate was very high primarily due to the high beta I gave which was 2.5. Meaning Redbubble is 2.5 times more volatile than the market which is kind of true recently. Although, I do admit I am pushing it and being highly conservative on that. Equity risk premium of 6% coming from the countries they operate in. Risk free rate was 1.6% same government yield. 

Cost of Equity = rf + (Equity risk premium* Beta) - Beta of 2.5 pushes the COE up dramatically. I guess to be accurate with Beta, you can extract daily stock price change volatility over previous years and measure volatility through formulas.   

I like to think of the discount rate as the rate of return I would need for a given investment. So a 10% discount rate just means I would need a 10% return on cash invested (or more technically, the return i'd want on a company's future cash flows). The higher the uncertainty/risk, the higher the discount rate i'll use.

Accpeted wisdom is that you apply a premium on the "risk free" rate, but that just means you should be happy to accept a lower equity return when other alternatives are offering lower rates. And that makes perfect sense. But as a long term investor, and one with a focus on small caps, 10% is about as low as I am prepared to go (eg targeting a 7% annual return on a pre-profit, early stage company just doesnt compensate me for the risks). Also, I think it's worth allowing for the fact that the risk free rate could well be higher in the future -- which is kind of what the market is wrestling with right now due to inflation concerns.

As always, there's no one correct view. Just bear in mind that the lower the discount rate, the lower the return you should be willing to accept. You'll find more opportunities, but that's the trade off.

I think Wollworths is a good example. I reckon long term average EPS growth is likely to 3-4% given it's maturity and size (although i'm sure it will be higher this year). So if you accept that, shares are only fair value if you're happy with a ~6-7% average annual return. That's probably fine for a lot of people, especially given how low risk it is and that you can expect a reliable fully franked dividend. But if you want a 10% annual return as a shareholder -- on average over the long term -- you need to either pay a much lower price (at least <$30) or have expectations for much stronger, and sustained, average annual profit growth.

“Just bear in mind that the lower the discount rate, the lower the return you should be willing to accept. You'll find more opportunities, but that's the trade off.” 

Exactly, hence that’s why my discount rate of 15% is high. As explained before I gave a beta of 2.5 which means for me Redbubble’s volatility in its stock price is too high. Therefore, I demand a higher required rate of return. The logic should makes sense. 

If I give a beta of 1, which is saying Redbubble has the same risk as the market i.e. ASX200 then the discount rate for me would be 6% + 1.6% = 7.6%. I don’t believe that as ever since the new CEO’s vision we saw a 35% plunge in value while the ASX200 did not change too much. Hence, there is company specific risk in the stock price. You could also argue sector rotation away from tech and into value stocks as the reason for the decline in price (case in point Etsy also fell not to the extent of Redbubble).