Intrinsic value of ARC Group Worldwide - ARCW

Previous Close

$2.36

  Intrinsic Value

$0.46

stock screener

  Rating & Target

str. sell

-80%

  Value-price divergence*

+10%

Previous close

$2.36

 
Intrinsic value

$0.46

 
Up/down potential

-80%

 
Rating

str. sell

 
Value-price divergence*

+10%

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

We calculate the intrinsic value of ARCW 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 0.0

 

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, %
  -7.96
  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
  104
  106
  109
  111
  114
  118
  122
  126
  130
  135
  140
  146
  152
  158
  165
  172
  179
  187
  196
  205
  214
  224
  235
  246
  257
  270
  282
  296
  310
  325
  341
Variable operating expenses, $m
 
  47
  48
  49
  50
  52
  54
  55
  57
  59
  62
  63
  66
  68
  71
  74
  77
  81
  85
  88
  92
  97
  101
  106
  111
  116
  122
  128
  134
  140
  147
Fixed operating expenses, $m
 
  58
  60
  61
  63
  64
  66
  68
  69
  71
  73
  75
  77
  79
  81
  83
  85
  87
  89
  91
  93
  96
  98
  101
  103
  106
  108
  111
  114
  117
  120
Total operating expenses, $m
  102
  105
  108
  110
  113
  116
  120
  123
  126
  130
  135
  138
  143
  147
  152
  157
  162
  168
  174
  179
  185
  193
  199
  207
  214
  222
  230
  239
  248
  257
  267
Operating income, $m
  2
  1
  1
  1
  1
  1
  2
  3
  4
  5
  6
  8
  10
  11
  13
  15
  17
  20
  22
  25
  28
  32
  35
  39
  43
  48
  52
  57
  63
  68
  74
EBITDA, $m
  12
  10
  10
  11
  11
  12
  13
  14
  15
  16
  18
  20
  22
  24
  26
  29
  32
  35
  38
  42
  46
  50
  54
  59
  64
  69
  75
  81
  87
  94
  102
Interest expense (income), $m
  4
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
Earnings before tax, $m
  -2
  -3
  -3
  -3
  -3
  -3
  -2
  -2
  -1
  0
  1
  3
  4
  6
  7
  9
  11
  13
  15
  17
  20
  23
  26
  29
  33
  37
  41
  45
  50
  55
  60
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
Net income, $m
  -2
  -3
  -3
  -3
  -3
  -3
  -2
  -2
  -1
  0
  1
  2
  3
  4
  5
  6
  8
  9
  11
  13
  15
  17
  19
  21
  24
  27
  30
  33
  37
  40
  44

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  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
  120
  118
  121
  124
  128
  131
  136
  140
  145
  151
  156
  163
  169
  176
  184
  192
  200
  209
  218
  228
  239
  250
  262
  274
  287
  301
  315
  330
  346
  363
  380
Adjusted assets (=assets-cash), $m
  116
  118
  121
  124
  128
  131
  136
  140
  145
  151
  156
  163
  169
  176
  184
  192
  200
  209
  218
  228
  239
  250
  262
  274
  287
  301
  315
  330
  346
  363
  380
Revenue / Adjusted assets
  0.897
  0.898
  0.901
  0.895
  0.891
  0.901
  0.897
  0.900
  0.897
  0.894
  0.897
  0.896
  0.899
  0.898
  0.897
  0.896
  0.895
  0.895
  0.899
  0.899
  0.895
  0.896
  0.897
  0.898
  0.895
  0.897
  0.895
  0.897
  0.896
  0.895
  0.897
Average production assets, $m
  67
  68
  69
  71
  73
  75
  78
  80
  83
  86
  90
  93
  97
  101
  105
  110
  115
  120
  125
  131
  137
  143
  150
  157
  164
  172
  180
  189
  198
  208
  218
Working capital, $m
  8
  20
  21
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  62
  66
Total debt, $m
  55
  52
  54
  56
  58
  61
  63
  66
  69
  73
  76
  80
  84
  89
  94
  99
  104
  109
  115
  122
  128
  135
  143
  150
  158
  167
  176
  186
  196
  206
  217
Total liabilities, $m
  77
  74
  76
  78
  80
  83
  85
  88
  91
  95
  98
  102
  106
  111
  116
  121
  126
  131
  137
  144
  150
  157
  165
  172
  180
  189
  198
  208
  218
  228
  239
Total equity, $m
  43
  44
  45
  46
  47
  49
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
  135
  141
Total liabilities and equity, $m
  120
  118
  121
  124
  127
  132
  135
  140
  145
  151
  156
  162
  169
  176
  184
  192
  200
  209
  218
  229
  239
  250
  262
  274
  286
  300
  315
  330
  346
  363
  380
Debt-to-equity ratio
  1.279
  1.190
  1.210
  1.220
  1.230
  1.240
  1.260
  1.270
  1.290
  1.300
  1.320
  1.330
  1.350
  1.360
  1.370
  1.390
  1.400
  1.410
  1.420
  1.440
  1.450
  1.460
  1.470
  1.480
  1.490
  1.500
  1.510
  1.520
  1.520
  1.530
  1.540
Adjusted equity ratio
  0.336
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2
  -3
  -3
  -3
  -3
  -3
  -2
  -2
  -1
  0
  1
  2
  3
  4
  5
  6
  8
  9
  11
  13
  15
  17
  19
  21
  24
  27
  30
  33
  37
  40
  44
Depreciation, amort., depletion, $m
  10
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
Funds from operations, $m
  4
  7
  7
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  20
  22
  24
  27
  29
  32
  35
  38
  41
  45
  48
  52
  57
  61
  66
  71
Change in working capital, $m
  -2
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Cash from operations, $m
  6
  6
  6
  7
  7
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  19
  21
  23
  25
  27
  30
  33
  36
  39
  42
  46
  50
  54
  59
  63
  68
Maintenance CAPEX, $m
  0
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
New CAPEX, $m
  -3
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
Cash from investing activities, $m
  -3
  -9
  -10
  -11
  -11
  -11
  -11
  -13
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -22
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -36
Free cash flow, $m
  3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -3
  -3
  -2
  -2
  -1
  -1
  0
  1
  2
  3
  5
  6
  8
  9
  11
  13
  15
  18
  20
  23
  26
  29
  32
Issuance/(repayment) of debt, $m
  -5
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Issuance/(repurchase) of shares, $m
  0
  4
  4
  4
  4
  4
  4
  3
  3
  2
  2
  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  
  -5
  5
  6
  6
  6
  6
  7
  6
  6
  5
  6
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Total cash flow (excl. dividends), $m
  -1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  2
  3
  4
  5
  6
  7
  9
  11
  12
  14
  16
  19
  21
  23
  26
  29
  32
  36
  39
  43
Retained Cash Flow (-), $m
  3
  -4
  -4
  -4
  -4
  -4
  -4
  -3
  -3
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Prev. year cash balance distribution, $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 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
 
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  0
  1
  1
  0
  0
  1
  2
  3
  4
  6
  7
  9
  10
  12
  14
  16
  19
  21
  24
  27
  30
  33
  37
Discount rate, %
 
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
 
  -2
  -2
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  92.0
  84.3
  77.0
  70.5
  64.8
  60.1
  56.2
  53.2
  51.1
  49.6
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5
  49.5

ARC Group Worldwide, Inc. is a manufacturing company. The Company has four segments: Precision Components Group, 3DMT Group, Flanges and Fittings Group, and Wireless Group. It provides a set of manufacturing solutions, from design and prototyping through production. Through the Company's product offering, it provides its customers with a prototyping and production solution for both precision metal and plastic fabrication. The Precision Components Group companies provide fabricated metal components using processes, consisting of metal injection molding, precision metal stamping and hermetic sealing. The 3DMT Group focuses on rapid prototyping, short-run production and rapid tooling. The Flange and Fittings Group consists of General Flange and Forge. The Wireless Group focuses on wireless broadband technology related to propagation and optimization. The Wireless Group designs and develops hardware, including antennas, radios and related accessories.

FINANCIAL RATIOS  of  ARC Group Worldwide (ARCW)

Valuation Ratios
P/E Ratio -22.2
Price to Sales 0.4
Price to Book 1
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow 14.8
Growth Rates
Sales Growth Rate -8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40%
Cap. Spend. - 3 Yr. Gr. Rate 24.6%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 90.7%
Total Debt to Equity 127.9%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.6%
Ret/ On Assets - 3 Yr. Avg. 2.4%
Return On Total Capital -1.9%
Ret/ On T. Cap. - 3 Yr. Avg. 1.3%
Return On Equity -4.5%
Return On Equity - 3 Yr. Avg. 4.6%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 19.2%
Gross Margin - 3 Yr. Avg. 23.4%
EBITDA Margin 11.5%
EBITDA Margin - 3 Yr. Avg. 13.1%
Operating Margin 1.9%
Oper. Margin - 3 Yr. Avg. 5.9%
Pre-Tax Margin -1.9%
Pre-Tax Margin - 3 Yr. Avg. 2.8%
Net Profit Margin -1.9%
Net Profit Margin - 3 Yr. Avg. 1.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 42.9%
Payout Ratio 0%

ARCW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARCW stock intrinsic value calculation we used $104 million for the last fiscal year's total revenue generated by ARC Group Worldwide. The default revenue input number comes from 2016 income statement of ARC Group Worldwide. 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 ARCW 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 8.5%, whose default value for ARCW is calculated based on our internal credit rating of ARC Group Worldwide, 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 ARC Group Worldwide.
    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 ARCW stock the variable cost ratio is equal to 44.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $57 million in the base year in the intrinsic value calculation for ARCW 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 6.8% for ARC Group Worldwide.

Corporate tax rate of 27% is the nominal tax rate for ARC Group Worldwide. 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 ARCW 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 ARCW are equal to 63.9%.

Life of production assets of 8 years is the average useful life of capital assets used in ARC Group Worldwide 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 ARCW is equal to 19.2%. 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 - $43 million for ARC Group Worldwide - 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 17.383 million for ARC Group Worldwide 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 ARC Group Worldwide at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Is It Time To Buy ARC Group Worldwide Inc (ARCW)?   [Oct-11-17 12:14PM  Simply Wall St.]
▶ ARC Group reports 4Q loss   [Sep-26-17 09:54PM  Associated Press]
▶ ARC Group Worldwide Announces Sale of Non-Core Division   [Sep-18-17 04:15PM  GlobeNewswire]
▶ Is It Time To Buy ARC Group Worldwide Inc (ARCW)?   [Sep-14-17 08:25PM  Simply Wall St.]
▶ ARC Group reports 3Q loss   [May-15-17 04:20PM  Associated Press]
▶ ARC Group reports 2Q loss   [Feb-09-17 04:09PM  Associated Press]
▶ ARC Group Worldwide Announces New Senior Credit Facility   [Sep-29-16 05:07PM  Marketwired]
▶ What Hedge Funds Think of Firearms Stocks   [Jun-08-16 09:52AM  at Insider Monkey]
▶ Gun stocks rocked by concerns over a drop in demand   [Jun-06-16 01:41PM  at MarketWatch]
Financial statements of ARCW
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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