Simulations Plus, Inc. (SLP) stock intrinsic value fair value estimate & owner earnings analysis

Simulations Plus is a niche, asset-light software and consulting business that sells modeling and simulation tools used by pharmaceutical, biotech, and related companies to predict how drug candidates will behave in the body and to design more efficient clinical trials. Its flagship products (including GastroPlus and ADMET Predictor, both enhanced with AI/machine-learning features) have been continuously developed for more than two decades and are used across the full drug-development lifecycle, from early discovery through regulatory submission. In 2023 and 2024 the company added two bolt-on businesses: Immunetrics (modeling) and, more significantly, Pro-ficiency, an adaptive learning platform for clinical-trial training and compliance, acquired for about $99 million. The business is diversified and not reliant on any single customer (its largest client is about 7% of revenue) or region (international sales are roughly 27-31% of revenue), and it carries essentially no debt, funding itself from operating cash flow and a healthy investment portfolio. Fiscal 2025 was messy on the surface: the company reported a net loss of about $65 million, driven entirely by a $77 million non-cash write-down of goodwill and acquired intangibles, split roughly evenly between its Software and Services businesses. Management attributed this to Pro-ficiency performing below expectations and to a decline in the company's own market value that triggered an accounting impairment test. Because this charge is non-cash, it does not reduce the cash the business actually generates for owners, and we exclude it from our earnings measure for that reason - but we do treat the underlying Pro-ficiency stumble as a real signal about execution risk on acquisitions, and we reflect that in our cases below rather than in the reported earnings level. We also note that stock-based compensation has grown from under 2% of revenue a decade ago to roughly 8% today; because this is a real, recurring cost to shareholders (it dilutes future per-share value even though it doesn't use cash today), we subtract it in full every year. We measured normalized owner earnings using the five most recent fiscal years (2021-2025), which capture both a strong year (2022) and the weaker, acquisition-affected years (2023-2024) before this year's rebound, giving a median of about $0.67 per share. Revenue growth has clearly decelerated - from the high-teens percentage two years ago to roughly 5% in the most recent nine months reported - and we have set our base case's near-term growth assumption (about 8% in year one) below the unusually large rebound seen in the full 2025 fiscal year, in line with that more recent, cooler trend. Our base case assumes growth moderates further to the high single digits over the next decade as the core simulation-software franchise continues to benefit from the drug industry's structural shift toward computer-aided drug development (a trend that reduces costly clinical failures and is independent of any one company's fortunes), while Pro-ficiency stabilizes as a modest, unspectacular contributor rather than a growth engine. On this path we estimate the shares are worth around $23. Our bear case (roughly a one-in-ten outcome) assumes growth stalls near-term - a mild revenue decline as core software renewals face pricing pressure and Pro-ficiency continues to underwhelm - before stabilizing at a very slow pace, with margins staying under pressure and continued share dilution from stock compensation. That path is worth around $12 per share. Our bull case (roughly a one-in-ten better outcome) assumes the company successfully cross-sells Pro-ficiency's training platform into its large existing base of pharmaceutical software customers and that broader adoption of model-based drug development reaccelerates overall growth back toward the mid-teens, with margins recovering as integration costs fade. That path is worth around $33 per share. Because this is a continuously self-renewing software and know-how business - funded by roughly $10 million a year of R&D that is already charged against the earnings we used, not a one-time investment - we believe it is reasonable to value the years beyond our ten-year forecast as an ongoing, modestly growing business rather than a business with a fixed end date, similar to how one would value a long-established professional franchise. That said, this long-run view does account for a majority of the value in our base case, and it rests on the judgment that the core software platforms keep renewing themselves indefinitely at a very low rate of growth; if that reinvestment engine stops working as well as it has for the last twenty-plus years, the true value would be meaningfully lower. Given the uncertainty introduced by the recent acquisition stumble and the clear slowdown in growth, the margin-of-safety price sits at a meaningful discount to our estimate of fair value, at roughly $15 per share. We did not find anything else in the filings - such as a going-concern warning, delisting risk, or unusual ownership structure - that would disqualify the company from consideration.