The WACC of Hydrofarm Holdings Group Inc (HYFM) is 25.5%.
| Range | Selected | |
| Cost of equity | 17.70% - 23.50% | 20.60% |
| Tax rate | 1.80% - 4.90% | 3.35% |
| Cost of debt | 7.00% - 47.80% | 27.40% |
| WACC | 8.1% - 42.9% | 25.5% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 3.01 | 3.32 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 17.70% | 23.50% |
| Tax rate | 1.80% | 4.90% |
| Debt/Equity ratio | 7.61 | 7.61 |
| Cost of debt | 7.00% | 47.80% |
| After-tax WACC | 8.1% | 42.9% |
| Selected WACC | 25.5% | |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for HYFM:
cost_of_equity (20.60%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (3.01) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.