Intrinsic value of Cherokee - CHKE

Previous Close

$2.20

  Intrinsic Value

$6.32

stock screener

  Rating & Target

str. buy

+187%

  Value-price divergence*

+36%

Previous close

$2.20

 
Intrinsic value

$6.32

 
Up/down potential

+187%

 
Rating

str. buy

 
Value-price divergence*

+36%

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

We calculate the intrinsic value of CHKE 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 2017), $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
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.14
  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
  41
  42
  43
  44
  45
  46
  48
  50
  51
  53
  55
  58
  60
  62
  65
  68
  71
  74
  77
  81
  84
  88
  93
  97
  101
  106
  111
  117
  122
  128
  134
Variable operating expenses, $m
 
  25
  26
  27
  27
  28
  29
  30
  31
  32
  33
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  73
  77
Fixed operating expenses, $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
Total operating expenses, $m
  44
  25
  26
  27
  27
  28
  29
  30
  31
  32
  33
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  73
  77
Operating income, $m
  -3
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  52
  55
  58
EBITDA, $m
  -1
  21
  21
  22
  22
  23
  24
  25
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
  67
Interest expense (income), $m
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
Earnings before tax, $m
  -5
  14
  14
  15
  15
  15
  16
  16
  17
  18
  18
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
Tax expense, $m
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
Net income, $m
  -8
  10
  10
  11
  11
  11
  12
  12
  12
  13
  13
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  166
  161
  165
  169
  174
  179
  185
  192
  198
  206
  214
  222
  231
  241
  251
  262
  273
  285
  298
  312
  326
  341
  357
  374
  392
  410
  430
  451
  472
  495
  519
Adjusted assets (=assets-cash), $m
  158
  161
  165
  169
  174
  179
  185
  192
  198
  206
  214
  222
  231
  241
  251
  262
  273
  285
  298
  312
  326
  341
  357
  374
  392
  410
  430
  451
  472
  495
  519
Revenue / Adjusted assets
  0.259
  0.261
  0.261
  0.260
  0.259
  0.257
  0.259
  0.260
  0.258
  0.257
  0.257
  0.261
  0.260
  0.257
  0.259
  0.260
  0.260
  0.260
  0.258
  0.260
  0.258
  0.258
  0.261
  0.259
  0.258
  0.259
  0.258
  0.259
  0.258
  0.259
  0.258
Average production assets, $m
  81
  82
  84
  86
  89
  91
  94
  97
  101
  105
  109
  113
  118
  122
  128
  133
  139
  145
  152
  159
  166
  173
  182
  190
  199
  209
  219
  229
  240
  252
  264
Working capital, $m
  1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Total debt, $m
  47
  44
  46
  48
  51
  54
  57
  61
  65
  69
  73
  78
  83
  89
  94
  100
  107
  114
  121
  129
  137
  145
  154
  164
  174
  184
  195
  207
  219
  232
  245
Total liabilities, $m
  94
  91
  93
  95
  98
  101
  104
  108
  112
  116
  120
  125
  130
  136
  141
  147
  154
  161
  168
  176
  184
  192
  201
  211
  221
  231
  242
  254
  266
  279
  292
Total equity, $m
  72
  71
  72
  74
  76
  78
  81
  84
  87
  90
  93
  97
  101
  105
  110
  114
  119
  125
  130
  136
  143
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
Total liabilities and equity, $m
  166
  162
  165
  169
  174
  179
  185
  192
  199
  206
  213
  222
  231
  241
  251
  261
  273
  286
  298
  312
  327
  341
  357
  374
  392
  410
  430
  451
  472
  495
  519
Debt-to-equity ratio
  0.653
  0.620
  0.640
  0.650
  0.670
  0.690
  0.710
  0.730
  0.750
  0.770
  0.780
  0.800
  0.820
  0.840
  0.860
  0.880
  0.890
  0.910
  0.930
  0.940
  0.960
  0.970
  0.990
  1.000
  1.010
  1.030
  1.040
  1.050
  1.060
  1.070
  1.080
Adjusted equity ratio
  0.405
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -8
  10
  10
  11
  11
  11
  12
  12
  12
  13
  13
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
Depreciation, amort., depletion, $m
  2
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Funds from operations, $m
  27
  15
  15
  15
  16
  16
  16
  17
  17
  18
  19
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  41
Change in working capital, $m
  15
  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 operations, $m
  12
  15
  15
  15
  16
  16
  16
  17
  17
  18
  19
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
New CAPEX, $m
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
Cash from investing activities, $m
  -74
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -12
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -20
Free cash flow, $m
  -62
  10
  10
  10
  10
  10
  10
  11
  11
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
Issuance/(repayment) of debt, $m
  34
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  14
Issuance/(repurchase) of shares, $m
  36
  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  
  64
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  14
Total cash flow (excl. dividends), $m
  2
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
Retained Cash Flow (-), $m
  -30
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
Prev. year cash balance distribution, $m
 
  3
  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
 
  14
  11
  11
  11
  11
  11
  11
  12
  12
  12
  12
  12
  13
  13
  14
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  13
  9
  8
  8
  7
  6
  5
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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
  100.0
  100.0
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Cherokee Inc. is a marketer and manager of a portfolio of fashion and lifestyle brands it owns or represents, licensing the Cherokee, Liz Lange, Completely Me by Liz Lange, Hawk, Tony Hawk, Sideout, Carole Little, Everyday California , Flip Flop Shops and ale by alessandra brands and related brands in various consumer product categories and sectors. The Company operates in the segment of marketing and licensing of brand names and trademarks for apparel, footwear and accessories. It is a licensor of style focused lifestyle brands for apparel, footwear, home products and accessories. It performs a range of services, including marketing, solicitation of licensees, contract negotiations and administration and maintenance of license or distribution agreements, among others. It operates in the United States, Canada, Latin America, Asia, the United Kingdom and Europe. Its brands are licensed with retail and wholesale licensees in over 50 countries and approximately 9,000 retail locations.

FINANCIAL RATIOS  of  Cherokee (CHKE)

Valuation Ratios
P/E Ratio -3.6
Price to Sales 0.7
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 2.4
Price to Free Cash Flow 2.6
Growth Rates
Sales Growth Rate 17.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -45.1%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 58.3%
Total Debt to Equity 65.3%
Interest Coverage -2
Management Effectiveness
Return On Assets -4.1%
Ret/ On Assets - 3 Yr. Avg. 9.4%
Return On Total Capital -8.6%
Ret/ On T. Cap. - 3 Yr. Avg. 7.9%
Return On Equity -14%
Return On Equity - 3 Yr. Avg. 16.6%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 87.8%
Gross Margin - 3 Yr. Avg. 29.3%
EBITDA Margin -2.4%
EBITDA Margin - 3 Yr. Avg. 30.6%
Operating Margin -7.3%
Oper. Margin - 3 Yr. Avg. 25.2%
Pre-Tax Margin -12.2%
Pre-Tax Margin - 3 Yr. Avg. 22.6%
Net Profit Margin -19.5%
Net Profit Margin - 3 Yr. Avg. 10.6%
Effective Tax Rate -60%
Eff/ Tax Rate - 3 Yr. Avg. 3.9%
Payout Ratio 0%

CHKE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHKE stock intrinsic value calculation we used $41 million for the last fiscal year's total revenue generated by Cherokee. The default revenue input number comes from 2017 income statement of Cherokee. 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 CHKE 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 8.2%, whose default value for CHKE is calculated based on our internal credit rating of Cherokee, 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 Cherokee.
    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 CHKE stock the variable cost ratio is equal to 61%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CHKE 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 5.6% for Cherokee.

Corporate tax rate of 27% is the nominal tax rate for Cherokee. 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 CHKE 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 CHKE are equal to 196.3%.

Life of production assets of 44.3 years is the average useful life of capital assets used in Cherokee 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 CHKE is equal to -4.9%. 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 - $72 million for Cherokee - 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 13.323 million for Cherokee 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 Cherokee at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ ETFs with exposure to Cherokee, Inc. : October 5, 2017   [Oct-05-17 10:56AM  Capital Cube]
▶ Stocks That Fell to 3-Year Lows in the Week of Sept. 29   [Sep-30-17 09:35PM  GuruFocus.com]
▶ ETFs with exposure to Cherokee, Inc. : September 13, 2017   [Sep-13-17 05:46PM  Capital Cube]
▶ Cherokee reports 2Q loss   [Sep-07-17 09:34PM  Associated Press]
▶ Have Investors Already Priced In Cherokee Incs (CHKE) Growth?   [Sep-06-17 09:08AM  Simply Wall St.]
▶ New Strong Sell Stocks for August 30th   [Aug-30-17 08:17AM  Zacks]
▶ ETFs with exposure to Cherokee, Inc. : August 29, 2017   [Aug-29-17 06:34PM  Capital Cube]
▶ Cherokee Global Brands Amends Credit Facility with Cerberus   [Aug-14-17 08:00AM  GlobeNewswire]
▶ ETFs with exposure to Cherokee, Inc. : July 7, 2017   [Jul-07-17 02:43PM  Capital Cube]
▶ Cherokee reports 1Q loss   [Jul-06-17 09:13PM  Associated Press]
▶ ETFs with exposure to Cherokee, Inc. : June 26, 2017   [Jun-26-17 03:37PM  Capital Cube]
▶ ETFs with exposure to Cherokee, Inc. : June 13, 2017   [Jun-13-17 12:20PM  Capital Cube]
▶ ETFs with exposure to Cherokee, Inc. : June 2, 2017   [Jun-02-17 01:58PM  Capital Cube]
▶ Cherokee reports 4Q loss   [May-11-17 05:50PM  Associated Press]
▶ LD Micro Index Reconstitution as of February 1, 2017   [Feb-01-17 09:45AM  Accesswire]
▶ ETFs with exposure to Cherokee, Inc. : December 16, 2016   [Dec-16-16 11:23AM  Capital Cube]
▶ Flip Flop Shops® Announces New Growth Initiatives   [Sep-13-16 09:00AM  GlobeNewswire]
Financial statements of CHKE
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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