Valvoline Inc. (VVV), an owner and franchisor of automotive services stores, recently implemented a methodology change that inflates a key metric.

Following three consecutive years of declining same-store-sales (SSS), Valvoline disclosed in a footnote it changed the way it calculates the metric:

“Beginning in fiscal 2025, Valvoline determines SSS growth as the year-over-year change in net revenues of U.S. VIOC same stores (company-operated, franchised and the combination of these for system-wide SSS) with same stores defined as those that have been in operation within the system for at least 12 full months. Previously, SSS was determined utilizing net revenues of U.S. VIOC stores, with new stores, including franchised conversions, excluded from the metric until the completion of their first full fiscal year in operation. Beginning with fiscal year 2022, SSS measures have been recast to conform with the current approach and all fiscal years prior to this period remain presented consistent with the former SSS approach.”

The change inflated historical same-store-sales by 5.9%, 2.5%, and 2.1% in 2024, 2023, and 2022, respectively.

Even with the change, Valvoline’s FY25 SSS declined for a fourth consecutive year.

With an Enterprise Value (EV) of approximately $5.5 billion, Valvoline is priced as if it will grow annual sales to more than $14.1 billion, up from an estimated $2 billion in FY26. To justify its current share price of $31.43 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Valvoline must:

—Grow sales 23.5% annually for the next decade, faster than the consensus FY 26 estimate of 19.6% and the three-year average of 11.5%
—Increase NOPAT margin to 9.7%, versus our FY25 estimate of 6.2% and three-year average estimate of 6.8%
—Increase Invested Capital (IC) Turns to 0.95, up from our FY25 estimate of 0.73 and three-year estimate of 0.71

Notably, the current share price also implies Valvoline increases Return on Invested Capital (ROIC) to 9.22% from our three-year average estimate of 4.94%: