Intrinsic value of DSP Group - DSPG

Previous Close

$12.25

  Intrinsic Value

$2.81

stock screener

  Rating & Target

str. sell

-77%

  Value-price divergence*

+6%

Previous close

$12.25

 
Intrinsic value

$2.81

 
Up/down potential

-77%

 
Rating

str. sell

 
Value-price divergence*

+6%

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

We calculate the intrinsic value of DSPG 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, %
  -4.17
  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
  138
  141
  144
  148
  152
  156
  162
  167
  173
  179
  186
  194
  201
  210
  219
  228
  238
  249
  260
  272
  284
  297
  311
  326
  341
  358
  375
  393
  412
  432
  453
Variable operating expenses, $m
 
  141
  144
  148
  152
  156
  161
  167
  173
  179
  186
  193
  201
  209
  218
  227
  237
  248
  259
  271
  283
  296
  310
  325
  340
  356
  373
  391
  410
  430
  451
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
  134
  141
  144
  148
  152
  156
  161
  167
  173
  179
  186
  193
  201
  209
  218
  227
  237
  248
  259
  271
  283
  296
  310
  325
  340
  356
  373
  391
  410
  430
  451
Operating income, $m
  4
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
EBITDA, $m
  7
  1
  1
  1
  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
Interest expense (income), $m
  0
  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
Earnings before tax, $m
  5
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
Tax expense, $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
  0
Net income, $m
  5
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  47
  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
  186
  142
  145
  149
  153
  158
  163
  168
  174
  181
  188
  195
  203
  211
  220
  230
  240
  251
  262
  274
  286
  300
  314
  328
  344
  360
  377
  396
  415
  435
  456
Adjusted assets (=assets-cash), $m
  139
  142
  145
  149
  153
  158
  163
  168
  174
  181
  188
  195
  203
  211
  220
  230
  240
  251
  262
  274
  286
  300
  314
  328
  344
  360
  377
  396
  415
  435
  456
Revenue / Adjusted assets
  0.993
  0.993
  0.993
  0.993
  0.993
  0.987
  0.994
  0.994
  0.994
  0.989
  0.989
  0.995
  0.990
  0.995
  0.995
  0.991
  0.992
  0.992
  0.992
  0.993
  0.993
  0.990
  0.990
  0.994
  0.991
  0.994
  0.995
  0.992
  0.993
  0.993
  0.993
Average production assets, $m
  8
  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
Working capital, $m
  52
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
Total debt, $m
  0
  1
  2
  3
  4
  5
  7
  8
  10
  12
  14
  16
  18
  21
  23
  26
  29
  32
  35
  39
  42
  46
  50
  55
  59
  64
  69
  74
  79
  85
  91
Total liabilities, $m
  40
  41
  42
  43
  44
  45
  47
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  95
  99
  104
  109
  114
  119
  125
  131
Total equity, $m
  146
  101
  103
  106
  109
  112
  116
  120
  124
  129
  134
  139
  144
  150
  157
  164
  171
  178
  186
  195
  204
  213
  223
  234
  245
  256
  269
  282
  295
  310
  325
Total liabilities and equity, $m
  186
  142
  145
  149
  153
  157
  163
  168
  174
  181
  188
  195
  202
  211
  220
  230
  240
  250
  261
  274
  286
  299
  313
  329
  344
  360
  378
  396
  414
  435
  456
Debt-to-equity ratio
  0.000
  0.010
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.230
  0.240
  0.250
  0.260
  0.260
  0.270
  0.280
  0.280
Adjusted equity ratio
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
Depreciation, amort., depletion, $m
  3
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
Funds from operations, $m
  20
  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
  2
  2
  2
  2
Change in working capital, $m
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  17
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Maintenance CAPEX, $m
  0
  -1
  -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
  -2
  -2
  -3
New CAPEX, $m
  -2
  0
  0
  0
  0
  0
  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
Cash from investing activities, $m
  -3
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
Free cash flow, $m
  14
  0
  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
Issuance/(repayment) of debt, $m
  0
  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
Issuance/(repurchase) of shares, $m
  -9
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  14
  14
  15
  16
Cash from financing (excl. dividends), $m  
  -9
  3
  3
  4
  4
  4
  5
  6
  6
  7
  7
  7
  7
  8
  9
  10
  10
  11
  11
  12
  13
  14
  14
  15
  15
  17
  18
  19
  19
  21
  22
Total cash flow (excl. dividends), $m
  4
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
Retained Cash Flow (-), $m
  -3
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
Prev. year cash balance distribution, $m
 
  47
  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
 
  48
  1
  1
  1
  1
  2
  2
  2
  2
  2
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
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
 
  46
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.9
  97.6
  96.2
  94.7
  93.1
  91.4
  89.6
  87.8
  85.9
  84.0
  82.3
  80.5
  78.7
  76.9
  75.1
  73.3
  71.6
  69.8
  68.0
  66.3
  64.6
  62.9
  61.2
  59.5
  57.9
  56.3
  54.7
  53.2
  51.7
  50.2

DSP Group, Inc., a fabless semiconductor company, provides wireless chipset solutions for converged communications worldwide. It operates through three segments: Home, Office, and Mobile. The company provides a portfolio of wireless chipsets that integrate DECT/CAT-iq, ULE, Wi-Fi, PSTN, HDClear, video, and VoIP technologies. It also enables converged voice, audio, and data connectivity in various consumer and enterprise products, including mobile and wearable devices, connected multimedia screens, home automation and security to cordless phones, VoIP systems, and home gateways. The company sells its products through a network of distributors and marketing offices, as well as directly to original equipment manufacturers and original design manufacturers. DSP Group, Inc. was founded in 1979 and is headquartered in Los Altos, California.

FINANCIAL RATIOS  of  DSP Group (DSPG)

Valuation Ratios
P/E Ratio 53.7
Price to Sales 1.9
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 15.8
Price to Free Cash Flow 17.9
Growth Rates
Sales Growth Rate -4.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
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 2.7%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 3.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2.5%
Return On Equity 3.5%
Return On Equity - 3 Yr. Avg. 2.5%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 44.2%
Gross Margin - 3 Yr. Avg. 41.9%
EBITDA Margin 5.8%
EBITDA Margin - 3 Yr. Avg. 3.8%
Operating Margin 2.9%
Oper. Margin - 3 Yr. Avg. 1%
Pre-Tax Margin 3.6%
Pre-Tax Margin - 3 Yr. Avg. 1.9%
Net Profit Margin 3.6%
Net Profit Margin - 3 Yr. Avg. 2.6%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. -100%
Payout Ratio 0%

DSPG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DSPG stock intrinsic value calculation we used $138 million for the last fiscal year's total revenue generated by DSP Group. The default revenue input number comes from 2016 income statement of DSP 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 DSPG 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 DSPG is calculated based on our internal credit rating of DSP 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 DSP 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 DSPG stock the variable cost ratio is equal to 100%.

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 DSPG 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 DSP Group.

Corporate tax rate of 27% is the nominal tax rate for DSP 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 DSPG 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 DSPG are equal to 5.8%.

Life of production assets of 10 years is the average useful life of capital assets used in DSP 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 DSPG is equal to 3.6%. 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 - $146 million for DSP 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 21.117 million for DSP 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 DSP Group at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ ETFs with exposure to DSP Group, Inc. : July 10, 2017   [Jul-10-17 02:21PM  Capital Cube]
▶ ETFs with exposure to DSP Group, Inc. : June 27, 2017   [Jun-27-17 03:09PM  Capital Cube]
▶ ETFs with exposure to DSP Group, Inc. : June 12, 2017   [Jun-12-17 02:00PM  Capital Cube]
▶ DSP Group reports 1Q loss   [Apr-27-17 09:48AM  Associated Press]
▶ ETFs with exposure to DSP Group, Inc. : April 5, 2017   [Apr-05-17 04:39PM  Capital Cube]
▶ DSP Group tops Street 4Q forecasts   [08:01AM  Associated Press]
▶ Here is What Hedge Funds Think About DSP Group, Inc. (DSPG)   [Dec-10-16 03:46PM  at Insider Monkey]
▶ DSP Group Announces Upcoming Investor Events   [Aug-23-16 07:00AM  GlobeNewswire]
▶ DSP Group ULE Solutions Enable Effective Rodent Control   [May-31-16 02:00AM  GlobeNewswire]
▶ DSP Group reports 1Q loss   [08:52AM  AP]
▶ AT&T developing new "bone conduction" technologies (SLIDESHOW)   [Mar-10-16 07:00PM  at bizjournals.com]
▶ DSP Group to Participate in the 28th Annual ROTH Conference   [Feb-29-16 07:00AM  GlobeNewswire]
▶ The Top 5 Micro Cap Semiconductor Stocks for 2016 (NVEC, UCTT)   [Feb-21-16 02:24AM  at Investopedia]
Stock chart of DSPG Financial statements of DSPG Annual reports of DSPG
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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