Intrinsic value of Chembio Diagnostics - CEMI

Previous Close

$7.30

  Intrinsic Value

$19.49

stock screener

  Rating & Target

str. buy

+167%

Previous close

$7.30

 
Intrinsic value

$19.49

 
Up/down potential

+167%

 
Rating

str. buy

We calculate the intrinsic value of CEMI 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 0.1

 

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, %
  -25.00
  33.30
  30.47
  27.92
  25.63
  23.57
  21.71
  20.04
  18.54
  17.18
  15.96
  14.87
  13.88
  12.99
  12.19
  11.47
  10.83
  10.24
  9.72
  9.25
  8.82
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
Revenue, $m
  18
  24
  31
  40
  50
  62
  76
  91
  108
  126
  146
  168
  191
  216
  243
  270
  300
  330
  363
  396
  431
  467
  505
  545
  585
  628
  672
  718
  766
  815
  867
Variable operating expenses, $m
 
  12
  16
  20
  25
  31
  38
  45
  54
  63
  73
  84
  96
  108
  121
  135
  150
  165
  181
  198
  216
  234
  253
  272
  293
  314
  336
  359
  383
  408
  434
Fixed operating expenses, $m
 
  16
  17
  17
  18
  18
  19
  19
  19
  20
  20
  21
  22
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
Total operating expenses, $m
  25
  28
  33
  37
  43
  49
  57
  64
  73
  83
  93
  105
  118
  130
  144
  158
  174
  189
  206
  224
  242
  261
  281
  300
  322
  344
  366
  390
  415
  441
  468
Operating income, $m
  -8
  -4
  -1
  3
  7
  13
  19
  26
  34
  43
  53
  63
  74
  86
  99
  112
  126
  141
  156
  172
  189
  207
  225
  244
  264
  284
  306
  328
  351
  375
  400
EBITDA, $m
  -7
  -4
  0
  4
  9
  15
  21
  29
  37
  47
  57
  68
  79
  92
  105
  120
  134
  150
  166
  183
  201
  220
  239
  259
  280
  302
  324
  348
  372
  398
  424
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
Earnings before tax, $m
  -8
  -4
  -1
  3
  7
  13
  19
  26
  34
  42
  52
  62
  73
  85
  97
  110
  124
  139
  154
  170
  186
  204
  222
  240
  260
  280
  301
  323
  345
  369
  394
Tax expense, $m
  5
  0
  0
  1
  2
  3
  5
  7
  9
  11
  14
  17
  20
  23
  26
  30
  34
  37
  42
  46
  50
  55
  60
  65
  70
  76
  81
  87
  93
  100
  106
Net income, $m
  -13
  -4
  -1
  2
  5
  9
  14
  19
  25
  31
  38
  45
  53
  62
  71
  81
  91
  101
  112
  124
  136
  149
  162
  175
  190
  204
  220
  236
  252
  269
  287

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  11
  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
  21
  13
  17
  22
  28
  35
  42
  50
  60
  70
  81
  93
  106
  120
  135
  150
  167
  184
  201
  220
  239
  260
  281
  303
  325
  349
  373
  399
  425
  453
  482
Adjusted assets (=assets-cash), $m
  10
  13
  17
  22
  28
  35
  42
  50
  60
  70
  81
  93
  106
  120
  135
  150
  167
  184
  201
  220
  239
  260
  281
  303
  325
  349
  373
  399
  425
  453
  482
Revenue / Adjusted assets
  1.800
  1.846
  1.824
  1.818
  1.786
  1.771
  1.810
  1.820
  1.800
  1.800
  1.802
  1.806
  1.802
  1.800
  1.800
  1.800
  1.796
  1.793
  1.806
  1.800
  1.803
  1.796
  1.797
  1.799
  1.800
  1.799
  1.802
  1.799
  1.802
  1.799
  1.799
Average production assets, $m
  3
  3
  4
  6
  7
  9
  11
  13
  15
  18
  20
  23
  27
  30
  34
  38
  42
  46
  50
  55
  60
  65
  70
  76
  81
  87
  93
  100
  106
  113
  121
Working capital, $m
  15
  5
  7
  9
  11
  14
  17
  20
  24
  28
  32
  37
  42
  48
  54
  60
  67
  73
  80
  88
  96
  104
  112
  121
  130
  139
  149
  159
  170
  181
  192
Total debt, $m
  0
  1
  3
  5
  7
  10
  13
  16
  20
  24
  29
  33
  39
  44
  50
  56
  63
  69
  77
  84
  92
  100
  108
  117
  126
  136
  145
  156
  166
  177
  189
Total liabilities, $m
  3
  5
  7
  9
  11
  14
  17
  20
  24
  28
  33
  37
  43
  48
  54
  60
  67
  73
  81
  88
  96
  104
  112
  121
  130
  140
  149
  160
  170
  181
  193
Total equity, $m
  17
  8
  10
  13
  17
  21
  25
  30
  36
  42
  49
  56
  64
  72
  81
  90
  100
  110
  121
  132
  144
  156
  168
  182
  195
  209
  224
  239
  255
  272
  289
Total liabilities and equity, $m
  20
  13
  17
  22
  28
  35
  42
  50
  60
  70
  82
  93
  107
  120
  135
  150
  167
  183
  202
  220
  240
  260
  280
  303
  325
  349
  373
  399
  425
  453
  482
Debt-to-equity ratio
  0.000
  0.170
  0.280
  0.370
  0.430
  0.470
  0.510
  0.530
  0.560
  0.570
  0.580
  0.600
  0.600
  0.610
  0.620
  0.620
  0.630
  0.630
  0.630
  0.640
  0.640
  0.640
  0.640
  0.640
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
Adjusted equity ratio
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -13
  -4
  -1
  2
  5
  9
  14
  19
  25
  31
  38
  45
  53
  62
  71
  81
  91
  101
  112
  124
  136
  149
  162
  175
  190
  204
  220
  236
  252
  269
  287
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
Funds from operations, $m
  -8
  -4
  0
  3
  7
  11
  16
  21
  28
  34
  42
  50
  59
  68
  78
  88
  99
  110
  122
  135
  148
  162
  176
  191
  206
  222
  238
  256
  273
  292
  312
Change in working capital, $m
  -1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
Cash from operations, $m
  -7
  -5
  -2
  1
  4
  8
  13
  18
  24
  30
  37
  45
  53
  62
  72
  82
  92
  104
  115
  128
  140
  154
  167
  182
  197
  212
  229
  245
  263
  281
  300
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -23
New CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
Cash from investing activities, $m
  -1
  -2
  -2
  -2
  -2
  -3
  -4
  -4
  -5
  -6
  -7
  -7
  -8
  -8
  -10
  -11
  -12
  -12
  -13
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -27
  -28
  -30
Free cash flow, $m
  -8
  -6
  -4
  -1
  2
  5
  9
  14
  19
  25
  31
  38
  46
  54
  62
  71
  81
  91
  102
  113
  124
  137
  149
  162
  176
  190
  205
  220
  236
  253
  270
Issuance/(repayment) of debt, $m
  0
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
Issuance/(repurchase) of shares, $m
  13
  6
  4
  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
  0
  0
  0
Cash from financing (excl. dividends), $m  
  13
  7
  6
  3
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
Total cash flow (excl. dividends), $m
  5
  1
  2
  2
  4
  8
  12
  17
  23
  29
  36
  43
  51
  59
  68
  77
  87
  98
  109
  120
  132
  145
  158
  171
  185
  200
  215
  231
  247
  264
  282
Retained Cash Flow (-), $m
  1
  -6
  -4
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
Prev. year cash balance distribution, $m
 
  11
  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
 
  6
  -2
  -1
  1
  4
  8
  12
  17
  23
  29
  36
  43
  51
  59
  68
  78
  88
  98
  109
  121
  132
  145
  158
  171
  185
  200
  215
  231
  247
  264
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
 
  6
  -2
  -1
  1
  3
  6
  8
  11
  13
  15
  17
  18
  19
  20
  20
  20
  19
  18
  17
  15
  14
  12
  10
  9
  7
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  83.2
  76.6
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
  75.3
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Chembio Diagnostics, Inc. (Chembio), and its subsidiary, Chembio Diagnostic Systems, Inc., develop, manufacture, market and license rapid point-of-care diagnostic tests (POCTs) that detect infectious diseases. The Company's products available are rapid tests for the detection of human immunodeficiency virus (HIV) 1/2 antibodies, and a multiplex rapid test for the detection of HIV and Syphilis antibodies. The HIV 1/2 rapid tests employ in-licensed and lateral flow technologies that are used with all blood matrices as samples, and are manufactured in a standard cassette format, a dipstick format and a barrel format. Its HIV 1/2 rapid antibody detection test incorporates the Dual Path Platform (DPP) POCT technology. The DPP HIV 1/2 Assay detects antibodies to HIV 1 and 2 in oral fluid samples, as well as in all blood matrices. The Company's product pipeline includes a multiplex rapid test for earlier detection of HIV and a multiplex test that detects HIV and Syphilis specific antibodies.

FINANCIAL RATIOS  of  Chembio Diagnostics (CEMI)

Valuation Ratios
P/E Ratio -6.8
Price to Sales 4.9
Price to Book 5.2
Price to Tangible Book
Price to Cash Flow -12.5
Price to Free Cash Flow -12.5
Growth Rates
Sales Growth Rate -25%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
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 -61.9%
Ret/ On Assets - 3 Yr. Avg. -24.9%
Return On Total Capital -74.3%
Ret/ On T. Cap. - 3 Yr. Avg. -29.9%
Return On Equity -74.3%
Return On Equity - 3 Yr. Avg. -29.9%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 44.4%
Gross Margin - 3 Yr. Avg. 41.8%
EBITDA Margin -38.9%
EBITDA Margin - 3 Yr. Avg. -18.3%
Operating Margin -38.9%
Oper. Margin - 3 Yr. Avg. -19.7%
Pre-Tax Margin -44.4%
Pre-Tax Margin - 3 Yr. Avg. -22.8%
Net Profit Margin -72.2%
Net Profit Margin - 3 Yr. Avg. -28%
Effective Tax Rate -62.5%
Eff/ Tax Rate - 3 Yr. Avg. 12.5%
Payout Ratio 0%

CEMI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CEMI stock intrinsic value calculation we used $18 million for the last fiscal year's total revenue generated by Chembio Diagnostics. The default revenue input number comes from 2016 income statement of Chembio Diagnostics. 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 CEMI stock valuation model: a) initial revenue growth rate of 33.3% 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 CEMI is calculated based on our internal credit rating of Chembio Diagnostics, 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 Chembio Diagnostics.
    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 CEMI stock the variable cost ratio is equal to 50%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $16 million in the base year in the intrinsic value calculation for CEMI 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 Chembio Diagnostics.

Corporate tax rate of 27% is the nominal tax rate for Chembio Diagnostics. 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 CEMI 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 CEMI are equal to 13.9%.

Life of production assets of 2.5 years is the average useful life of capital assets used in Chembio Diagnostics 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 CEMI is equal to 22.2%. 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 - $17 million for Chembio Diagnostics - 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 12.309 million for Chembio Diagnostics 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 Chembio Diagnostics at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ CEMI: DPP HIV/Syph, Several DPP Fever Products to Drive 2018 Growth   [Nov-20-17 09:00AM  Zacks Small Cap Research]
▶ Gail S. Page Joins Chembio Diagnostics Board of Directors   [Jul-06-17 08:50AM  GlobeNewswire]
▶ Chembio Diagnostics Announces At-The-Market Program   [Jun-27-17 04:30PM  GlobeNewswire]
▶ CEMI New Strategy Paying Dividends As Product Sales Bounce Back   [May-18-17 12:00PM  Zacks Small Cap Research]
▶ CEMI: Surprise Rebound In Lateral Flow, Expect DPP Strong Showing In 2017   [Mar-10-17 11:15AM  Zacks Small Cap Research]
▶ Chembio Diagnostics Reports 2016 Financial Results   [Mar-07-17 04:10PM  GlobeNewswire]
▶ Chembio Expands Global Commercial Operations Leadership   [Oct-11-16 08:50AM  GlobeNewswire]
Financial statements of CEMI
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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