Intrinsic value of Descartes Systems Group - DSGX

Previous Close

$29.00

  Intrinsic Value

$3.88

stock screener

  Rating & Target

str. sell

-87%

Previous close

$29.00

 
Intrinsic value

$3.88

 
Up/down potential

-87%

 
Rating

str. sell

We calculate the intrinsic value of DSGX 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  10.27
  19.20
  17.78
  16.50
  15.35
  14.32
  13.38
  12.55
  11.79
  11.11
  10.50
  9.95
  9.46
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
Revenue, $m
  204
  243
  286
  334
  385
  440
  499
  561
  628
  697
  771
  847
  927
  1,011
  1,098
  1,189
  1,283
  1,381
  1,483
  1,588
  1,698
  1,812
  1,931
  2,055
  2,183
  2,317
  2,457
  2,602
  2,754
  2,912
  3,077
Variable operating expenses, $m
 
  200
  231
  265
  301
  340
  383
  427
  475
  524
  577
  605
  662
  722
  784
  849
  916
  986
  1,059
  1,134
  1,213
  1,294
  1,379
  1,467
  1,559
  1,655
  1,754
  1,858
  1,966
  2,079
  2,197
Fixed operating expenses, $m
 
  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
  2
  2
  2
  2
  2
Total operating expenses, $m
  173
  201
  232
  266
  302
  341
  384
  428
  476
  525
  578
  606
  663
  723
  785
  850
  917
  988
  1,061
  1,136
  1,215
  1,296
  1,381
  1,469
  1,561
  1,657
  1,756
  1,860
  1,968
  2,081
  2,199
Operating income, $m
  31
  42
  55
  68
  83
  98
  115
  133
  152
  172
  193
  241
  264
  288
  313
  338
  365
  393
  422
  453
  484
  517
  550
  586
  622
  661
  701
  742
  785
  830
  878
EBITDA, $m
  65
  84
  99
  116
  134
  153
  173
  195
  218
  243
  268
  295
  323
  352
  383
  415
  447
  482
  517
  554
  593
  633
  674
  717
  762
  809
  858
  909
  962
  1,017
  1,075
Interest expense (income), $m
  0
  0
  0
  1
  2
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  31
  32
Earnings before tax, $m
  32
  42
  54
  67
  81
  96
  112
  130
  148
  167
  187
  234
  256
  279
  303
  328
  354
  380
  408
  437
  467
  499
  531
  565
  600
  637
  675
  715
  757
  800
  845
Tax expense, $m
  8
  11
  15
  18
  22
  26
  30
  35
  40
  45
  50
  63
  69
  75
  82
  88
  95
  103
  110
  118
  126
  135
  143
  153
  162
  172
  182
  193
  204
  216
  228
Net income, $m
  24
  31
  39
  49
  59
  70
  82
  95
  108
  122
  136
  171
  187
  204
  221
  239
  258
  278
  298
  319
  341
  364
  388
  412
  438
  465
  493
  522
  552
  584
  617

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  38
  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
  501
  551
  649
  757
  873
  998
  1,131
  1,273
  1,423
  1,581
  1,748
  1,921
  2,103
  2,293
  2,490
  2,695
  2,909
  3,131
  3,362
  3,601
  3,851
  4,110
  4,379
  4,659
  4,951
  5,254
  5,571
  5,900
  6,244
  6,603
  6,977
Adjusted assets (=assets-cash), $m
  463
  551
  649
  757
  873
  998
  1,131
  1,273
  1,423
  1,581
  1,748
  1,921
  2,103
  2,293
  2,490
  2,695
  2,909
  3,131
  3,362
  3,601
  3,851
  4,110
  4,379
  4,659
  4,951
  5,254
  5,571
  5,900
  6,244
  6,603
  6,977
Revenue / Adjusted assets
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
Average production assets, $m
  149
  178
  209
  244
  281
  321
  364
  410
  458
  509
  563
  619
  677
  738
  802
  868
  937
  1,008
  1,082
  1,159
  1,240
  1,323
  1,410
  1,500
  1,594
  1,692
  1,793
  1,899
  2,010
  2,126
  2,246
Working capital, $m
  19
  -23
  -27
  -31
  -36
  -41
  -46
  -52
  -58
  -65
  -72
  -79
  -86
  -94
  -102
  -111
  -119
  -128
  -138
  -148
  -158
  -169
  -180
  -191
  -203
  -215
  -228
  -242
  -256
  -271
  -286
Total debt, $m
  0
  13
  28
  44
  62
  81
  101
  122
  145
  169
  194
  220
  248
  276
  306
  337
  369
  403
  438
  474
  511
  551
  591
  634
  678
  723
  771
  821
  873
  927
  984
Total liabilities, $m
  70
  83
  98
  114
  132
  151
  171
  192
  215
  239
  264
  290
  318
  346
  376
  407
  439
  473
  508
  544
  581
  621
  661
  704
  748
  793
  841
  891
  943
  997
  1,054
Total equity, $m
  431
  468
  551
  642
  741
  847
  960
  1,081
  1,208
  1,343
  1,484
  1,631
  1,786
  1,946
  2,114
  2,288
  2,470
  2,658
  2,854
  3,058
  3,269
  3,489
  3,718
  3,956
  4,203
  4,461
  4,729
  5,009
  5,301
  5,606
  5,923
Total liabilities and equity, $m
  501
  551
  649
  756
  873
  998
  1,131
  1,273
  1,423
  1,582
  1,748
  1,921
  2,104
  2,292
  2,490
  2,695
  2,909
  3,131
  3,362
  3,602
  3,850
  4,110
  4,379
  4,660
  4,951
  5,254
  5,570
  5,900
  6,244
  6,603
  6,977
Debt-to-equity ratio
  0.000
  0.030
  0.050
  0.070
  0.080
  0.100
  0.100
  0.110
  0.120
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.150
  0.150
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.170
  0.170
Adjusted equity ratio
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24
  31
  39
  49
  59
  70
  82
  95
  108
  122
  136
  171
  187
  204
  221
  239
  258
  278
  298
  319
  341
  364
  388
  412
  438
  465
  493
  522
  552
  584
  617
Depreciation, amort., depletion, $m
  34
  42
  45
  48
  51
  54
  58
  62
  66
  71
  76
  54
  59
  65
  70
  76
  82
  88
  95
  102
  109
  116
  124
  132
  140
  148
  157
  167
  176
  186
  197
Funds from operations, $m
  83
  73
  84
  97
  110
  125
  140
  157
  174
  193
  212
  225
  246
  268
  291
  315
  340
  366
  393
  421
  450
  480
  511
  544
  578
  613
  650
  689
  729
  770
  814
Change in working capital, $m
  10
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
Cash from operations, $m
  73
  76
  88
  101
  115
  130
  146
  163
  180
  199
  219
  232
  254
  276
  300
  324
  349
  375
  402
  431
  460
  491
  522
  556
  590
  626
  663
  702
  743
  785
  829
Maintenance CAPEX, $m
  0
  -13
  -16
  -18
  -21
  -25
  -28
  -32
  -36
  -40
  -45
  -49
  -54
  -59
  -65
  -70
  -76
  -82
  -88
  -95
  -102
  -109
  -116
  -124
  -132
  -140
  -148
  -157
  -167
  -176
  -186
New CAPEX, $m
  -5
  -29
  -32
  -35
  -37
  -40
  -43
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -64
  -66
  -69
  -71
  -74
  -77
  -80
  -83
  -87
  -90
  -94
  -98
  -102
  -106
  -111
  -115
  -120
Cash from investing activities, $m
  -70
  -42
  -48
  -53
  -58
  -65
  -71
  -78
  -84
  -91
  -98
  -105
  -112
  -120
  -129
  -136
  -145
  -153
  -162
  -172
  -182
  -192
  -203
  -214
  -226
  -238
  -250
  -263
  -278
  -291
  -306
Free cash flow, $m
  3
  35
  41
  48
  56
  65
  75
  85
  96
  108
  121
  127
  141
  156
  171
  187
  204
  222
  240
  259
  278
  299
  320
  342
  365
  388
  413
  439
  465
  493
  522
Issuance/(repayment) of debt, $m
  1
  13
  15
  16
  18
  19
  20
  21
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  57
Issuance/(repurchase) of shares, $m
  0
  44
  44
  42
  39
  36
  31
  26
  20
  13
  5
  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  
  0
  57
  59
  58
  57
  55
  51
  47
  43
  37
  30
  26
  27
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  57
Total cash flow (excl. dividends), $m
  1
  92
  100
  106
  113
  120
  126
  132
  138
  145
  150
  153
  169
  184
  201
  218
  236
  255
  275
  295
  316
  338
  360
  384
  409
  434
  461
  488
  517
  547
  579
Retained Cash Flow (-), $m
  -29
  -75
  -83
  -91
  -99
  -106
  -113
  -121
  -127
  -134
  -141
  -148
  -154
  -161
  -168
  -174
  -181
  -188
  -196
  -204
  -212
  -220
  -229
  -238
  -248
  -258
  -269
  -280
  -292
  -304
  -318
Prev. year cash balance distribution, $m
 
  38
  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
 
  55
  16
  15
  14
  14
  13
  12
  11
  10
  9
  6
  14
  24
  33
  44
  55
  67
  79
  91
  104
  118
  132
  146
  161
  176
  192
  209
  226
  243
  261
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
 
  53
  15
  13
  12
  11
  9
  8
  7
  6
  5
  3
  6
  9
  11
  13
  14
  14
  14
  14
  13
  12
  11
  10
  8
  7
  6
  4
  3
  3
  2
Current shareholders' claim on cash, %
  100
  97.9
  96.1
  94.7
  93.6
  92.7
  92.1
  91.6
  91.3
  91.1
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0

Descartes Systems Group Inc (Descartes) is a Canada-based global provider of federated network and global logistics technology solutions that help its customers make and receive shipments and manage related resources. Its network-based solutions, which primarily consist of services and software, connect people to their trading partners and enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route and resource planning, execution and monitoring; access and leverage global trade and restricted party data; inventory and asset visibility; rate and transportation management, and warehouse operations. Its solutions include Logistics Technology Platform that fuses the Descartes Global Logistics Network (Descartes GLN); customs and regulatory compliance; routing, mobile and telematics; global logistics network services; transportation management, and broker and forwarder enterprise systems. It operates through MacroPoint.

FINANCIAL RATIOS  of  Descartes Systems Group (DSGX)

Valuation Ratios
P/E Ratio 91.7
Price to Sales 10.8
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 30.1
Price to Free Cash Flow 32.4
Growth Rates
Sales Growth Rate 10.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 25%
Cap. Spend. - 3 Yr. Gr. Rate 20.1%
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 5%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. 5.2%
Return On Equity 5.8%
Return On Equity - 3 Yr. Avg. 5.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 72.5%
Gross Margin - 3 Yr. Avg. 70.4%
EBITDA Margin 32.4%
EBITDA Margin - 3 Yr. Avg. 30.4%
Operating Margin 15.2%
Oper. Margin - 3 Yr. Avg. 14.6%
Pre-Tax Margin 15.7%
Pre-Tax Margin - 3 Yr. Avg. 14.6%
Net Profit Margin 11.8%
Net Profit Margin - 3 Yr. Avg. 10.6%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 27.3%
Payout Ratio 0%

DSGX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DSGX stock intrinsic value calculation we used $204 million for the last fiscal year's total revenue generated by Descartes Systems Group. The default revenue input number comes from 2017 income statement of Descartes Systems Group. 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 DSGX stock valuation model: a) initial revenue growth rate of 19.2% 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 DSGX is calculated based on our internal credit rating of Descartes Systems Group, 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 Descartes Systems Group.
    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 DSGX stock the variable cost ratio is equal to 84.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1 million in the base year in the intrinsic value calculation for DSGX 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 Descartes Systems Group.

Corporate tax rate of 27% is the nominal tax rate for Descartes Systems Group. 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 DSGX 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 DSGX are equal to 73%.

Life of production assets of 11.4 years is the average useful life of capital assets used in Descartes Systems Group 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 DSGX is equal to -9.3%. 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 - $431 million for Descartes Systems Group - 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 76.761 million for Descartes Systems Group 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 Descartes Systems Group at the current share price and the inputted number of shares is $2.2 billion.

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COMPANY NEWS

▶ December Top Growth Stocks To Buy   [Dec-14-17 11:02AM  Simply Wall St.]
▶ Descartes Systems misses 3Q profit forecasts   [Nov-29-17 04:11PM  Associated Press]
▶ Descartes Systems Gets A Composite Rating Upgrade   [03:00AM  Investor's Business Daily]
▶ Descartes Systems misses 2Q profit forecasts   [Sep-06-17 11:56PM  Associated Press]
▶ Manuport Logistics Uses Descartes for SOLAS Compliance   [Aug-22-17 06:46AM  GlobeNewswire]
▶ Descartes Acquires MacroPoint   [Aug-15-17 06:30AM  GlobeNewswire]
▶ How To Play It: Mobility   [09:45AM  Forbes]
▶ Descartes Acquires PCSTrac Business   [Jun-02-17 06:45AM  GlobeNewswire]
▶ Descartes Announces Results of Annual Shareholder Meeting   [Jun-01-17 04:01PM  GlobeNewswire]
▶ Descartes Systems misses 1Q profit forecasts   [May-31-17 04:14PM  Associated Press]
▶ Descartes Acquires ShipRush   [May-19-17 06:45AM  GlobeNewswire]
▶ Descartes Systems misses 4Q profit forecasts   [Mar-08-17 05:04PM  Associated Press]
▶ [$$] Descartes Acquires Datamyne   [Dec-23-16 03:43PM  at The Wall Street Journal]
▶ Descartes Acquires Datamyne   [08:10AM  GlobeNewswire]
Financial statements of DSGX
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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