Intrinsic value of American Software Cl A - AMSWA

Previous Close

$9.30

  Intrinsic Value

$8.94

stock screener

  Rating & Target

hold

-4%

  Value-price divergence*

-33%

Previous close

$9.30

 
Intrinsic value

$8.94

 
Up/down potential

-4%

 
Rating

hold

 
Value-price divergence*

-33%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AMSWA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.68
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  114
  116
  119
  122
  125
  129
  133
  138
  143
  148
  154
  160
  166
  173
  181
  188
  197
  206
  215
  225
  235
  246
  257
  269
  282
  295
  310
  324
  340
  357
  374
Variable operating expenses, $m
 
  63
  65
  66
  68
  70
  72
  75
  77
  80
  83
  84
  88
  91
  95
  99
  104
  108
  113
  118
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
Fixed operating expenses, $m
 
  40
  41
  42
  43
  44
  45
  46
  48
  49
  50
  51
  52
  54
  55
  56
  58
  59
  61
  62
  64
  66
  67
  69
  71
  72
  74
  76
  78
  80
  82
Total operating expenses, $m
  100
  103
  106
  108
  111
  114
  117
  121
  125
  129
  133
  135
  140
  145
  150
  155
  162
  167
  174
  180
  188
  196
  203
  211
  220
  228
  237
  247
  257
  268
  279
Operating income, $m
  14
  13
  13
  14
  14
  15
  16
  17
  18
  19
  21
  24
  26
  28
  30
  33
  35
  38
  41
  44
  47
  51
  54
  58
  63
  67
  72
  77
  83
  89
  95
EBITDA, $m
  20
  17
  17
  17
  18
  19
  20
  21
  22
  23
  25
  27
  28
  31
  33
  35
  38
  41
  44
  47
  50
  54
  58
  62
  67
  71
  76
  82
  88
  94
  100
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Earnings before tax, $m
  15
  13
  13
  14
  14
  15
  16
  17
  18
  19
  20
  24
  26
  27
  30
  32
  34
  37
  39
  42
  46
  49
  53
  57
  61
  65
  70
  75
  80
  86
  92
Tax expense, $m
  5
  4
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  18
  19
  20
  22
  23
  25
Net income, $m
  10
  10
  10
  10
  10
  11
  11
  12
  13
  14
  15
  17
  19
  20
  22
  23
  25
  27
  29
  31
  33
  36
  38
  41
  44
  48
  51
  55
  59
  63
  67

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  70
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  137
  68
  70
  72
  74
  76
  78
  81
  84
  87
  90
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
  200
  210
  220
Adjusted assets (=assets-cash), $m
  67
  68
  70
  72
  74
  76
  78
  81
  84
  87
  90
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
  200
  210
  220
Revenue / Adjusted assets
  1.701
  1.706
  1.700
  1.694
  1.689
  1.697
  1.705
  1.704
  1.702
  1.701
  1.711
  1.702
  1.694
  1.696
  1.708
  1.694
  1.698
  1.702
  1.706
  1.705
  1.703
  1.708
  1.702
  1.703
  1.699
  1.695
  1.703
  1.696
  1.700
  1.700
  1.700
Average production assets, $m
  16
  16
  16
  17
  17
  18
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44
  46
  49
  51
Working capital, $m
  55
  -12
  -12
  -12
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -36
  -37
Total debt, $m
  0
  1
  2
  3
  4
  6
  7
  9
  11
  13
  15
  17
  19
  22
  25
  27
  31
  34
  37
  41
  45
  49
  53
  57
  62
  67
  72
  78
  83
  89
  96
Total liabilities, $m
  42
  43
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  64
  67
  69
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  125
  131
  138
Total equity, $m
  95
  25
  26
  27
  28
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
  82
Total liabilities and equity, $m
  137
  68
  70
  72
  74
  76
  78
  81
  84
  87
  91
  94
  97
  102
  107
  110
  116
  121
  126
  132
  138
  145
  151
  158
  166
  174
  182
  191
  200
  209
  220
Debt-to-equity ratio
  0.000
  0.030
  0.070
  0.110
  0.150
  0.200
  0.250
  0.290
  0.340
  0.390
  0.440
  0.480
  0.530
  0.580
  0.620
  0.660
  0.710
  0.750
  0.790
  0.830
  0.870
  0.900
  0.940
  0.970
  1.000
  1.030
  1.060
  1.090
  1.120
  1.140
  1.170
Adjusted equity ratio
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10
  10
  10
  10
  10
  11
  11
  12
  13
  14
  15
  17
  19
  20
  22
  23
  25
  27
  29
  31
  33
  36
  38
  41
  44
  48
  51
  55
  59
  63
  67
Depreciation, amort., depletion, $m
  6
  3
  4
  4
  4
  4
  4
  4
  4
  4
  4
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Funds from operations, $m
  4
  13
  13
  14
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  45
  48
  52
  55
  59
  63
  68
  72
Change in working capital, $m
  -14
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
Cash from operations, $m
  18
  13
  14
  14
  14
  15
  16
  16
  17
  18
  19
  20
  22
  23
  25
  27
  28
  30
  33
  35
  38
  40
  43
  46
  49
  53
  57
  61
  65
  69
  74
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
New CAPEX, $m
  -4
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from investing activities, $m
  -4
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
Free cash flow, $m
  14
  11
  12
  12
  12
  13
  13
  14
  15
  16
  17
  17
  19
  20
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  44
  47
  51
  54
  58
  62
  67
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
Issuance/(repurchase) of shares, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
Total cash flow (excl. dividends), $m
  15
  12
  13
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  26
  28
  30
  32
  34
  37
  40
  42
  46
  49
  52
  56
  60
  64
  68
  73
Retained Cash Flow (-), $m
  -2
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
Prev. year cash balance distribution, $m
 
  70
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  82
  12
  12
  13
  13
  14
  15
  16
  16
  18
  18
  20
  21
  22
  24
  26
  28
  30
  32
  35
  37
  40
  43
  46
  49
  53
  57
  61
  65
  69
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  78
  11
  11
  10
  10
  10
  10
  10
  9
  9
  9
  8
  8
  8
  7
  7
  6
  6
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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American Software, Inc. develops, markets, and supports a portfolio of software and services that deliver enterprise management and collaborative supply chain solutions worldwide. It operates in three segments: Supply Chain Management (SCM), Enterprise Resource Planning (ERP), and Information Technology (IT) Consulting. The SCM segment provides supply chain management solutions, including sales and operations planning, inventory and supply optimization, manufacturing planning and scheduling, manufacturing planning and scheduling, transportation optimization, and advanced retail planning solutions to streamline and optimize the forecasting, inventory, production, supply, allocation, distribution, and management of products between trading partners. This segment also markets and sells Demand Solutions product line to small and midsize enterprises; and offers Logility Voyager Solutions suite to customers with distribution-intensive supply chains. The ERP segment offers purchasing and materials management, customer order processing, financial, e-commerce, flow and traditional manufacturing solutions, as well as provides industry-specific business software to retailers and manufacturers in the apparel, sewn products, and furniture industries. The IT Consulting segment provides IT staffing and consulting services, such as professional/project management, staff augmentation, infrastructure and consulting, and social media and analytic marketing services; and support for software products comprising software enhancements, documentation, updates, customer education, consulting, systems integration, maintenance, and other support services. The company markets its products through direct and indirect sales channels, and agents to retail, apparel, consumer packaged goods, chemicals, oil and gas, life sciences, telecommunications, industrial products, and other manufacturing industries. American Software, Inc. was founded in 1970 and is headquartered in Atlanta, Georgia.

FINANCIAL RATIOS  of  American Software Cl A (AMSWA)

Valuation Ratios
P/E Ratio 26.8
Price to Sales 2.4
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 14.9
Price to Free Cash Flow 19.2
Growth Rates
Sales Growth Rate 10.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 7.4%
Ret/ On Assets - 3 Yr. Avg. 7.2%
Return On Total Capital 10.6%
Ret/ On T. Cap. - 3 Yr. Avg. 10.2%
Return On Equity 10.6%
Return On Equity - 3 Yr. Avg. 10.2%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 52.6%
Gross Margin - 3 Yr. Avg. 53.2%
EBITDA Margin 18.4%
EBITDA Margin - 3 Yr. Avg. 17.6%
Operating Margin 12.3%
Oper. Margin - 3 Yr. Avg. 12%
Pre-Tax Margin 13.2%
Pre-Tax Margin - 3 Yr. Avg. 12.9%
Net Profit Margin 8.8%
Net Profit Margin - 3 Yr. Avg. 8.8%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 30.3%
Payout Ratio 110%

AMSWA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMSWA stock intrinsic value calculation we used $114 million for the last fiscal year's total revenue generated by American Software Cl A. The default revenue input number comes from 2016 income statement of American Software Cl A. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AMSWA stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AMSWA is calculated based on our internal credit rating of American Software Cl A, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of American Software Cl A.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AMSWA stock the variable cost ratio is equal to 54.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $39 million in the base year in the intrinsic value calculation for AMSWA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for American Software Cl A.

Corporate tax rate of 27% is the nominal tax rate for American Software Cl A. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AMSWA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AMSWA are equal to 13.6%.

Life of production assets of 10 years is the average useful life of capital assets used in American Software Cl A operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AMSWA is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $95 million for American Software Cl A - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 28.716 million for American Software Cl A is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of American Software Cl A at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ American Software posts 4Q profit   [Jun-22-17 08:50PM  Associated Press]
▶ Logility Congratulates the 2017 Gartner Supply Chain Top 25   [Jun-06-17 08:30AM  Business Wire]
▶ American Software, Inc. Adds to Board of Directors   [Jun-01-17 08:45AM  Business Wire]
▶ Logility Announces 2017 SAILS Leadership Award Winners   [Apr-04-17 08:30AM  Business Wire]
▶ American Software posts 3Q profit   [Feb-23-17 05:17PM  Associated Press]
▶ The ALDO Group Launches Retail S&OP Process with Logility   [Feb-07-17 08:30AM  Business Wire]
▶ Is Syros Pharmaceuticals Inc (SYRS) A Good Stock To Buy?   [Dec-15-16 08:15PM  at Insider Monkey]
▶ American Software posts 2Q profit   [Dec-01-16 04:15PM  AP]
▶ American Software posts 1Q profit   [Aug-25-16 04:13PM  AP]
▶ Logility Acquires AdapChain   [Aug-23-16 01:30PM  Business Wire]
Stock chart of AMSWA Financial statements of AMSWA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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