Intrinsic value of Educational Development - EDUC

Previous Close

$10.55

  Intrinsic Value

$29.29

stock screener

  Rating & Target

str. buy

+178%

  Value-price divergence*

0%

Previous close

$10.55

 
Intrinsic value

$29.29

 
Up/down potential

+178%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of EDUC 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, %
  93.94
  29.20
  26.78
  24.60
  22.64
  20.88
  19.29
  17.86
  16.57
  15.42
  14.38
  13.44
  12.59
  11.83
  11.15
  10.54
  9.98
  9.48
  9.04
  8.63
  8.27
  7.94
  7.65
  7.38
  7.14
  6.93
  6.74
  6.56
  6.41
  6.27
  6.14
Revenue, $m
  64
  83
  105
  131
  160
  194
  231
  272
  317
  366
  419
  475
  535
  598
  665
  735
  809
  885
  965
  1,049
  1,135
  1,226
  1,319
  1,417
  1,518
  1,623
  1,733
  1,846
  1,965
  2,088
  2,216
Variable operating expenses, $m
 
  78
  98
  123
  150
  182
  217
  255
  298
  344
  393
  446
  502
  561
  624
  690
  759
  830
  906
  984
  1,065
  1,150
  1,238
  1,329
  1,424
  1,523
  1,625
  1,732
  1,843
  1,958
  2,078
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
  60
  78
  98
  123
  150
  182
  217
  255
  298
  344
  393
  446
  502
  561
  624
  690
  759
  830
  906
  984
  1,065
  1,150
  1,238
  1,329
  1,424
  1,523
  1,625
  1,732
  1,843
  1,958
  2,078
Operating income, $m
  3
  5
  6
  8
  10
  12
  14
  17
  20
  23
  26
  29
  33
  37
  41
  46
  50
  55
  60
  65
  70
  76
  82
  88
  94
  101
  107
  114
  122
  129
  137
EBITDA, $m
  3
  5
  6
  8
  10
  12
  14
  17
  20
  23
  26
  29
  33
  37
  41
  46
  50
  55
  60
  65
  70
  76
  82
  88
  94
  101
  107
  114
  122
  129
  137
Interest expense (income), $m
  0
  1
  1
  2
  2
  3
  3
  4
  5
  6
  7
  8
  9
  10
  11
  13
  14
  15
  17
  18
  20
  22
  24
  25
  27
  29
  31
  34
  36
  38
  41
Earnings before tax, $m
  4
  4
  5
  7
  8
  9
  11
  13
  15
  17
  19
  22
  24
  27
  30
  33
  36
  39
  43
  47
  50
  54
  58
  62
  67
  71
  76
  81
  86
  91
  97
Tax expense, $m
  2
  1
  1
  2
  2
  3
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
Net income, $m
  2
  3
  4
  5
  6
  7
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  26
  29
  31
  34
  37
  40
  42
  46
  49
  52
  55
  59
  63
  67
  71

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  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
  0
  0
  0
Total assets, $m
  50
  63
  80
  100
  123
  148
  177
  208
  243
  280
  321
  364
  410
  458
  509
  563
  619
  678
  739
  803
  869
  938
  1,010
  1,085
  1,162
  1,243
  1,327
  1,414
  1,504
  1,599
  1,697
Adjusted assets (=assets-cash), $m
  49
  63
  80
  100
  123
  148
  177
  208
  243
  280
  321
  364
  410
  458
  509
  563
  619
  678
  739
  803
  869
  938
  1,010
  1,085
  1,162
  1,243
  1,327
  1,414
  1,504
  1,599
  1,697
Revenue / Adjusted assets
  1.306
  1.317
  1.313
  1.310
  1.301
  1.311
  1.305
  1.308
  1.305
  1.307
  1.305
  1.305
  1.305
  1.306
  1.306
  1.306
  1.307
  1.305
  1.306
  1.306
  1.306
  1.307
  1.306
  1.306
  1.306
  1.306
  1.306
  1.306
  1.307
  1.306
  1.306
Average production assets, $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
Working capital, $m
  4
  9
  11
  14
  17
  21
  25
  30
  35
  40
  46
  52
  58
  65
  73
  80
  88
  97
  105
  114
  124
  134
  144
  154
  165
  177
  189
  201
  214
  228
  242
Total debt, $m
  22
  32
  44
  59
  75
  94
  115
  138
  164
  191
  221
  252
  286
  322
  359
  399
  440
  483
  528
  575
  624
  675
  728
  782
  839
  899
  960
  1,024
  1,091
  1,160
  1,232
Total liabilities, $m
  36
  47
  59
  74
  90
  109
  130
  153
  179
  206
  236
  267
  301
  337
  374
  414
  455
  498
  543
  590
  639
  690
  743
  797
  854
  914
  975
  1,039
  1,106
  1,175
  1,247
Total equity, $m
  13
  17
  21
  27
  33
  39
  47
  55
  64
  74
  85
  96
  109
  121
  135
  149
  164
  180
  196
  213
  230
  249
  268
  287
  308
  329
  352
  375
  399
  424
  450
Total liabilities and equity, $m
  49
  64
  80
  101
  123
  148
  177
  208
  243
  280
  321
  363
  410
  458
  509
  563
  619
  678
  739
  803
  869
  939
  1,011
  1,084
  1,162
  1,243
  1,327
  1,414
  1,505
  1,599
  1,697
Debt-to-equity ratio
  1.692
  1.880
  2.070
  2.210
  2.310
  2.390
  2.450
  2.500
  2.540
  2.570
  2.600
  2.620
  2.640
  2.650
  2.660
  2.670
  2.680
  2.690
  2.700
  2.700
  2.710
  2.710
  2.720
  2.720
  2.720
  2.730
  2.730
  2.730
  2.740
  2.740
  2.740
Adjusted equity ratio
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2
  3
  4
  5
  6
  7
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  26
  29
  31
  34
  37
  40
  42
  46
  49
  52
  55
  59
  63
  67
  71
Depreciation, amort., depletion, $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
Funds from operations, $m
  10
  3
  4
  5
  6
  7
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  26
  29
  31
  34
  37
  40
  42
  46
  49
  52
  55
  59
  63
  67
  71
Change in working capital, $m
  3
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
Cash from operations, $m
  7
  1
  2
  2
  3
  3
  4
  5
  6
  7
  8
  10
  11
  13
  15
  16
  18
  20
  23
  25
  27
  30
  32
  35
  38
  41
  44
  47
  50
  53
  57
Maintenance CAPEX, $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
New CAPEX, $m
  -25
  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 investing activities, $m
  -25
  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
Free cash flow, $m
  -18
  1
  2
  2
  3
  3
  4
  5
  6
  7
  8
  10
  11
  13
  15
  16
  18
  20
  23
  25
  27
  30
  32
  35
  38
  41
  44
  47
  50
  53
  57
Issuance/(repayment) of debt, $m
  20
  11
  12
  15
  17
  19
  21
  23
  25
  28
  30
  32
  34
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
Issuance/(repurchase) of shares, $m
  0
  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
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  20
  12
  13
  15
  17
  19
  21
  23
  25
  28
  30
  32
  34
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
Total cash flow (excl. dividends), $m
  2
  12
  15
  17
  19
  22
  25
  28
  31
  35
  38
  41
  45
  49
  52
  56
  60
  64
  68
  72
  76
  80
  85
  90
  95
  100
  105
  111
  116
  122
  129
Retained Cash Flow (-), $m
  -1
  -4
  -4
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
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
 
  8
  10
  12
  13
  15
  17
  20
  22
  25
  27
  30
  33
  36
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
  78
  83
  88
  92
  98
  103
Discount rate, %
 
  8.90
  9.35
  9.81
  10.30
  10.82
  11.36
  11.93
  12.52
  13.15
  13.81
  14.50
  15.22
  15.98
  16.78
  17.62
  18.50
  19.43
  20.40
  21.42
  22.49
  23.61
  24.80
  26.03
  27.34
  28.70
  30.14
  31.65
  33.23
  34.89
  36.63
PV of cash for distribution, $m
 
  8
  8
  9
  9
  9
  9
  9
  9
  8
  7
  7
  6
  5
  4
  4
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.7
  97.7
  97.1
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
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  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
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  96.8
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  96.8

Educational Development Corporation operates as a trade publisher of the line of educational childrenÂ’s books in the United States. It offers various books, including Touchy-Feely board books, activity and flashcards, adventure and search books, art books, sticker books, and foreign language books, as well as science and math titles, and chapter books and novels. The company operates through two divisions, Home Business and Publishing. The Home Business division distributes books through a network of independent consultants, who hold book showings in individual homes; and through social media, book fairs, direct sales, and Internet sales. This division markets its products to school and public libraries. The Publishing division markets books to bookstores, toy stores, specialty stores, museums, and other retail outlets throughout the country. The company distributes childrenÂ’s books published by Usborne Publishing Limited in the United Kingdom. Educational Development Corporation was founded in 1965 and is headquartered in Tulsa, Oklahoma.

FINANCIAL RATIOS  of  Educational Development (EDUC)

Valuation Ratios
P/E Ratio 21.4
Price to Sales 0.7
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 6.1
Price to Free Cash Flow -2.4
Growth Rates
Sales Growth Rate 93.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 138.5%
Total Debt to Equity 169.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.9%
Ret/ On Assets - 3 Yr. Avg. 3.9%
Return On Total Capital 8.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.3%
Return On Equity 16%
Return On Equity - 3 Yr. Avg. 8%
Asset Turnover 1.9
Profitability Ratios
Gross Margin 67.2%
Gross Margin - 3 Yr. Avg. 63.1%
EBITDA Margin 6.3%
EBITDA Margin - 3 Yr. Avg. 4.4%
Operating Margin 6.3%
Oper. Margin - 3 Yr. Avg. 5.4%
Pre-Tax Margin 6.3%
Pre-Tax Margin - 3 Yr. Avg. 4.4%
Net Profit Margin 3.1%
Net Profit Margin - 3 Yr. Avg. 2.1%
Effective Tax Rate 50%
Eff/ Tax Rate - 3 Yr. Avg. 50%
Payout Ratio 50%

EDUC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EDUC stock intrinsic value calculation we used $64 million for the last fiscal year's total revenue generated by Educational Development. The default revenue input number comes from 2016 income statement of Educational Development. 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 EDUC stock valuation model: a) initial revenue growth rate of 29.2% 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 8.9%, whose default value for EDUC is calculated based on our internal credit rating of Educational Development, 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 Educational Development.
    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 EDUC stock the variable cost ratio is equal to 93.8%.

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 EDUC 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 Educational Development.

Corporate tax rate of 27% is the nominal tax rate for Educational Development. 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 EDUC 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 EDUC are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Educational Development 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 EDUC is equal to 10.9%. 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 - $13 million for Educational Development - 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 4.082 million for Educational Development 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 Educational Development at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ 10-Q for Educational Development Corp.   [Jul-17  08:09PM  at Company Spotlight]
▶ 10-K for Educational Development Corp.   [May-30  08:09PM  at Company Spotlight]
▶ 10-Q for Educational Development Corp.   [Jan-16  07:07PM  at Company Spotlight]
Stock chart of EDUC Financial statements of EDUC
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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