Intrinsic value of Escalade - ESCA

Previous Close

$11.90

  Intrinsic Value

$7.74

stock screener

  Rating & Target

sell

-35%

  Value-price divergence*

+13%

Previous close

$11.90

 
Intrinsic value

$7.74

 
Up/down potential

-35%

 
Rating

sell

 
Value-price divergence*

+13%

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

We calculate the intrinsic value of ESCA 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 0.2

 

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, %
  7.69
  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
  168
  171
  175
  180
  185
  190
  197
  203
  211
  218
  227
  236
  245
  255
  266
  278
  290
  303
  316
  331
  346
  362
  379
  397
  416
  435
  456
  478
  501
  526
  551
Variable operating expenses, $m
 
  143
  146
  150
  154
  158
  163
  169
  175
  181
  188
  193
  201
  210
  218
  228
  238
  248
  260
  271
  284
  297
  311
  326
  341
  357
  374
  392
  411
  431
  452
Fixed operating expenses, $m
 
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  27
Total operating expenses, $m
  153
  156
  160
  164
  168
  173
  178
  184
  191
  197
  205
  210
  218
  228
  236
  247
  257
  268
  280
  292
  305
  319
  333
  349
  365
  381
  399
  417
  437
  458
  479
Operating income, $m
  15
  15
  16
  16
  17
  17
  18
  19
  20
  21
  22
  25
  27
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  57
  61
  64
  68
  72
EBITDA, $m
  20
  21
  21
  22
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  82
Interest expense (income), $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Earnings before tax, $m
  16
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  24
  25
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  63
  66
Tax expense, $m
  5
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
Net income, $m
  11
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48

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
  151
  153
  157
  161
  165
  170
  176
  182
  188
  195
  202
  210
  219
  228
  238
  248
  259
  270
  283
  295
  309
  323
  338
  354
  371
  389
  407
  427
  448
  469
  492
Adjusted assets (=assets-cash), $m
  150
  153
  157
  161
  165
  170
  176
  182
  188
  195
  202
  210
  219
  228
  238
  248
  259
  270
  283
  295
  309
  323
  338
  354
  371
  389
  407
  427
  448
  469
  492
Revenue / Adjusted assets
  1.120
  1.118
  1.115
  1.118
  1.121
  1.118
  1.119
  1.115
  1.122
  1.118
  1.124
  1.124
  1.119
  1.118
  1.118
  1.121
  1.120
  1.122
  1.117
  1.122
  1.120
  1.121
  1.121
  1.121
  1.121
  1.118
  1.120
  1.119
  1.118
  1.122
  1.120
Average production assets, $m
  33
  34
  34
  35
  36
  37
  39
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  81
  85
  89
  94
  98
  103
  108
Working capital, $m
  58
  59
  60
  62
  64
  66
  68
  70
  73
  75
  78
  81
  85
  88
  92
  96
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
  157
  165
  173
  181
  190
Total debt, $m
  25
  25
  26
  27
  29
  30
  32
  34
  36
  38
  41
  43
  46
  49
  52
  55
  59
  63
  66
  71
  75
  79
  84
  89
  95
  100
  106
  113
  119
  126
  133
Total liabilities, $m
  49
  49
  50
  51
  53
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  87
  90
  95
  99
  103
  108
  113
  119
  124
  130
  137
  143
  150
  157
Total equity, $m
  102
  104
  106
  109
  112
  116
  119
  123
  128
  133
  138
  143
  149
  155
  162
  169
  176
  184
  192
  201
  210
  220
  230
  241
  252
  264
  277
  290
  304
  319
  335
Total liabilities and equity, $m
  151
  153
  156
  160
  165
  170
  175
  181
  188
  195
  203
  210
  219
  228
  238
  248
  259
  271
  282
  296
  309
  323
  338
  354
  371
  388
  407
  427
  447
  469
  492
Debt-to-equity ratio
  0.245
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
  0.280
  0.280
  0.290
  0.300
  0.300
  0.310
  0.320
  0.320
  0.330
  0.330
  0.340
  0.350
  0.350
  0.360
  0.360
  0.370
  0.370
  0.380
  0.380
  0.380
  0.390
  0.390
  0.400
  0.400
Adjusted equity ratio
  0.673
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
Depreciation, amort., depletion, $m
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
Funds from operations, $m
  8
  16
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  59
Change in working capital, $m
  -4
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  12
  15
  15
  15
  15
  15
  16
  16
  17
  18
  18
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
New CAPEX, $m
  -3
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
Cash from investing activities, $m
  -10
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -12
  -14
  -14
  -15
Free cash flow, $m
  2
  11
  11
  11
  11
  11
  11
  11
  12
  12
  13
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
Issuance/(repayment) of debt, $m
  2
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  3
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Total cash flow (excl. dividends), $m
  5
  12
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
Retained Cash Flow (-), $m
  -6
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
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
 
  10
  9
  9
  9
  9
  9
  9
  9
  10
  10
  10
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  27
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
 
  9
  9
  8
  8
  7
  7
  6
  6
  6
  5
  5
  4
  4
  4
  3
  3
  3
  2
  2
  2
  2
  1
  1
  1
  1
  1
  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
  100.0
  100.0
  100.0
  100.0
  100.0
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Escalade, Incorporated, together with its subsidiaries, manufactures and sells sporting goods to retailers, dealers, and wholesalers primarily in North America and Europe. It manufactures, imports, and distributes various sporting goods brands in basketball goals, archery, indoor and outdoor game recreation, and fitness products. It offers archery products under the Bear Archery, Trophy Ridge, Whisker Biscuit, and Cajun Archery brands; table tennis products under the STIGA, Ping-Pong, and Prince brands; basketball goals under the Goalrilla, Goaliath, Hoopstar, Goalsetter, and Silverback brands; play systems under the Woodplay and Childlife brands; fitness products under The STEP and USWeight brands; hockey and soccer game tables under the Atomic, American Legend, and Redline brands; billiard accessories under the Mizerak, Minnesota Fats, Lucasi, PureX, Rage, and Players brands; darting products under the Unicorn, Accudart, Arachnid, Nodor, and Winmau brands; and outdoor games under the Zume Games, Onix, Viva Sol, and Pickleball Now brands. The company offers its products through sporting goods retailers, specialty dealers, online retailers, traditional department stores, and mass merchants. Escalade, Incorporated was founded in 1922 and is headquartered in Evansville, Indiana.

FINANCIAL RATIOS  of  Escalade (ESCA)

Valuation Ratios
P/E Ratio 15.5
Price to Sales 1
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 14.2
Price to Free Cash Flow 18.9
Growth Rates
Sales Growth Rate 7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 23.5%
Total Debt to Equity 24.5%
Interest Coverage 17
Management Effectiveness
Return On Assets 7.9%
Ret/ On Assets - 3 Yr. Avg. 8.7%
Return On Total Capital 8.9%
Ret/ On T. Cap. - 3 Yr. Avg. 10%
Return On Equity 11.1%
Return On Equity - 3 Yr. Avg. 12.5%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 26.2%
Gross Margin - 3 Yr. Avg. 27.8%
EBITDA Margin 13.1%
EBITDA Margin - 3 Yr. Avg. 14.9%
Operating Margin 8.9%
Oper. Margin - 3 Yr. Avg. 9.6%
Pre-Tax Margin 9.5%
Pre-Tax Margin - 3 Yr. Avg. 11.4%
Net Profit Margin 6.5%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 31.3%
Eff/ Tax Rate - 3 Yr. Avg. 30.4%
Payout Ratio 54.5%

ESCA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ESCA stock intrinsic value calculation we used $168 million for the last fiscal year's total revenue generated by Escalade. The default revenue input number comes from 2016 income statement of Escalade. 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 ESCA 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 ESCA is calculated based on our internal credit rating of Escalade, 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 Escalade.
    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 ESCA stock the variable cost ratio is equal to 83.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13 million in the base year in the intrinsic value calculation for ESCA 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 4.2% for Escalade.

Corporate tax rate of 27% is the nominal tax rate for Escalade. 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 ESCA 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 ESCA are equal to 19.6%.

Life of production assets of 10.7 years is the average useful life of capital assets used in Escalade 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 ESCA is equal to 34.5%. 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 - $102 million for Escalade - 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 14.305 million for Escalade 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 Escalade at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Escalade posts 2Q profit   [Jul-31-17 11:01PM  Associated Press]
▶ ETFs with exposure to Escalade, Inc. : May 8, 2017   [May-08-17 04:29PM  Capital Cube]
▶ ETFs with exposure to Escalade, Inc. : April 24, 2017   [Apr-24-17 02:27PM  Capital Cube]
▶ Escalade posts 1Q profit   [Apr-20-17 08:35AM  Associated Press]
▶ ETFs with exposure to Escalade, Inc. : April 5, 2017   [Apr-05-17 04:43PM  Capital Cube]
▶ Escalade posts 4Q profit   [Feb-23-17 08:51AM  Associated Press]
▶ ETFs with exposure to Escalade, Inc. : November 2, 2016   [Nov-02-16 01:47PM  Capital Cube]
▶ INVESTIndiana announces executive presentation schedule   [Sep-06-16 10:00AM  GlobeNewswire]
▶ Escalade Announces Quarterly Dividend Of $0.11 Per Share   [Feb-25-16 05:00PM  PR Newswire]
▶ Smith & Wesson Hunts for Acquisitions   [Jan-21-16 09:28AM  at TheStreet]
▶ Bear Archery Set to Unveil New Crossbows Opening Morning   [Jan-05-16 06:39PM  PR Newswire]
▶ Escalade Announces Executive Management Change   [Dec-07  05:54PM  PR Newswire]
▶ 10-Q for Escalade, Inc.   [Aug-08  08:10PM  at Company Spotlight]
▶ 10-Q for Escalade, Inc.   [Apr-23  08:10PM  at Company Spotlight]
▶ 10-K for Escalade, Inc.   [Feb-27  07:08PM  at Company Spotlight]
▶ Cheap fuel drives US car sales to near record levels   [Feb-03  12:42PM  at Financial Times]
Stock chart of ESCA Financial statements of ESCA
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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