Pandora Valuation Update

Pandora A/S stock price has dropped almost 42% YTD and 45.6% since it reached its ATH back in February 2025. Dragged down by fears of sectoral headwinds: rising commodities prices, USA tariffs and FX headwinds; issues in key markets have amplified the stock sell-off.

Today, I am reviewing the company’s valuation based on new public information and expectations.

DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument; the content is educational and my personal opinion. Each person has to make their own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.

Podcast Generated from the Write-up

To give you more options for enjoying the write-up, I have used Google NotebookLM to generate a podcast of the present write-up that you can listen to while running, during your commute, or whenever you like. Now also available on Spotify.

The AI-generated podcast does a great job summarizing the article and making the content more accessible. However, it does not quote word-for-word the segments from the highlighted call transcript. Therefore, I recommend reading the original write-up to get the precise level of detail and profound insights.

Support Independent Analysis

This newsletter will always be FREE! If you’d like to help sustain it, consider buying me a coffee. With your contribution, I will cover any annual costs I might incur and search for alternatives to enhance the experience.

Assumptions Revision

The assumptions revision will be focused on four different aspects: revenue growth, margins evolution, CapEx investments, and terminal value.

Revenue Growth

Like any other retail business, Pandora has three levers for revenue growth:

1. Network Expansion

   Pandora has been increasing its store network sales by 4-5% during the last three years, and the company is still planning to continue expanding its network, especially across America and APAC.

   Being conservative, I will assume +3% sales growth due to network expansion in the coming decade.

2. Like-for-Like (LFL) Sales Growth

   LFL sales are comprised of: transaction volume, pricing and mix.

   Firstly, Pandora has increased the amount of pieces sold from 2018 to 2024 at an average CAGR of 2.8%, from 96 million pieces in 2018 to 113 million pieces in 2024. I will assume a transaction volume growth of 2% in the coming decade.

   Regarding pricing, Pandora has partially absorbed inflationary pressures over the past five years. The brand has implemented average annual price increases of +4.3% from 2019 to 2024.

   I will assume a positive effect on sales due to the pricing of +2%, which aligns with the long-term inflation target in developed countries.

   No mix impact accounted for because charms are still representing 75% of the sales despite all other collections released by the company during the past years.

Overall, an expected 7% sales growth will be used to model Pandora’s valuation.

Gross Margin

Gross margin has expanded during the previous six years by +5.5% due to the scale the company has gained, plus favourable commodity prices and the acquisition of franchises.

The company's latest estimates of FX headwinds and commodities impact were:

Based on these statements and assuming a linear relationship between silver price and margin impact, I believe that we can easily be in a situation in 2027 in which the silver price reaches 60$ per ounce having a negative effect of -630 bps in the company’s gross margin.

This headwind does not include any new countermeasures from Pandora. Hence, I will assume the company can counter at least -130 bps of headwind, leading to an overall gross margin headwind of -500 bps in 2027.

Operating Margin

The company has been lowering its EBIT margin guidance for 2025 and 2026 as all the gross margin headwinds continue to develop.

Overall, the integration of acquired franchises into the business has a neutral effect on the operating margin because the higher operating costs are countered by a more efficient network to be operated.

The operating margin for the coming year is expected to benefit from the Project Silverstone cost-saving initiatives. Beyond this, we foresee no material impact from operational efficiencies (SG&A changes) on the operating margin; thus, the margin performance will be entirely contingent on gross margin developments.

Investments

• Capital Expenditures (CapEx)

  Pandora's Capex-to-Sales ratio has increased remarkably since 2023, rising to over 5% compared to its five-year average from 2018–2022, sitting at 3.4%. This substantial increase in capital expenditure is attributable to two main strategic investment initiatives: the acceleration of its franchise acquisition strategy and significant spending on the construction of its new Vietnam factory, whose completion is expected in 2026.

  I will be conservative and assume Capex-to-Revenue ratio of 5%, not going down as Pandora will have to spend a larger amount of its cash flows in asset maintenance.

• Depreciation & Amortization (D&A)

  Linear depreciation over seven years is assumed. Pandora uses a 5 to 7-year period for shops, with shorter depreciation periods for software and longer ones for machinery and property.

• Net Working Capital (NWC)

  NWC-to-Sales ratio average since 2018 has been 5.5%. I will assume 6.0% ratio for modelling, although I anticipate the new ERP platform and other initiatives will lead to better net working capital management.

Terminal Value

Jewelry is one of the oldest discretionary goods categories, as it dates back in history to the beginning of civilizations. I am pretty confident to set a 2.5% terminal growth rate, aligned with global GDP growth.

Stay Always Tuned!

Subscribe now and join a community of savvy investors. Receive the latest insights directly in your inbox each week, ensuring you never miss a valuable opportunity.

DCF Model

Considering the listed assumptions until now, an intrinsic value of 1204,24 DKK per share is obtained from DCF model, if you set your opportunity cost at 12% (WACC). See the figure below.

Reverse DCF Model - What Are the Expectations?

According to the above DCF, Pandora is currently undervalued by 57%. The question then is, what is the market pricing to differ so much from my valuation?

I have run a 10-years reverse DCF model as per the following expression:

• FCFF₀: Free Cash Flow to the Firm I project for 2025. I estimate Pandora will generate DKK 5994 million in FY 2025.

• FCFF_N: projected Free Cash Flow to the Firm in 2035.

• g: is the FCFF growth in each year for the ten years in scope.

• g_terminal: is the terminal FCFF growth. 2.5% is used.

• WACC: is the opportunity cost. 12% opportunity cost is used.

• t: specific year in the forecast period

• N: Length of the explicit forecast period. 10 years is the period of forecast in my reverse DCF model.

Solving for g, the market is discounting that Pandora’s FCFF will decrease at a -4% CAGR during the coming decade at the current stock price.

Multiples Valuation

Pandora is currently trading in line with its historical trailing valuation multiples (Figure 3), while it seems to be at a local minimum when looking into the forward valuation multiples (Figure 4).

This is a reflection of the large weight the market places on the short-term performance of the company while facing the many sectoral challenges I have discussed in previous posts. This could be a great opportunity to capitalize on the market sentiment for anyone believing in the long-term prospects of the business.

Conclusion

Pandora appears to be clearly undervalued across all valuation and pricing methods examined in this analysis. Even under what can be considered conservative assumptions in our DCF model, the stock shows a 57% undervaluation relative to its intrinsic value at 1204 DKK per share.

In case our base case projections are met, a potential upside of 16.6% during the coming decade could be achieved, with an additional 2.6% dividend yield at the current price.

The DCF model projections have been built on conservative assumptions, and they still show a remarkable margin of safety to the estimated intrinsic value, which allows for other unknown headwinds to cushion. Additionally, there is also room for upside from that base case, such as an acceleration of network expansion, more aggressive pricing, product mix improvement, or a more moderate raw materials cost increase.

DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument; the content is educational and my personal opinion. Each person has to make their own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.

I hope you enjoyed this review of Pandora’s valuation. My primary goal was to present and discuss the assumptions behind the model, helping to better equip you with the right framework to make informed decisions during this period when the narrative around it has been quite pessimistic.

If you found today's insights helpful, please share them with friends or colleagues via social media or email.