Intrinsic value of Forrester Research - FORR

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$40.80

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$40.80

 
Intrinsic value

$43.10

 
Up/down potential

+6%

 
Rating

hold

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

We calculate the intrinsic value of FORR 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 0.8

 

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, %
  3.82
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  326
  334
  343
  354
  365
  377
  390
  405
  420
  437
  454
  473
  493
  514
  536
  560
  585
  612
  640
  669
  701
  734
  768
  805
  843
  884
  926
  971
  1,018
  1,068
  1,120
Variable operating expenses, $m
 
  62
  64
  65
  67
  69
  72
  74
  76
  79
  82
  78
  81
  85
  88
  92
  96
  101
  105
  110
  115
  121
  126
  132
  139
  145
  152
  160
  168
  176
  184
Fixed operating expenses, $m
 
  248
  254
  261
  267
  274
  281
  288
  295
  302
  310
  318
  325
  334
  342
  350
  359
  368
  377
  387
  397
  406
  417
  427
  438
  449
  460
  471
  483
  495
  508
Total operating expenses, $m
  295
  310
  318
  326
  334
  343
  353
  362
  371
  381
  392
  396
  406
  419
  430
  442
  455
  469
  482
  497
  512
  527
  543
  559
  577
  594
  612
  631
  651
  671
  692
Operating income, $m
  31
  24
  25
  27
  30
  34
  38
  43
  49
  55
  62
  78
  86
  96
  106
  117
  130
  143
  157
  172
  189
  206
  225
  245
  267
  290
  314
  340
  368
  397
  428
EBITDA, $m
  40
  34
  35
  37
  40
  44
  48
  53
  59
  66
  73
  81
  90
  100
  110
  122
  134
  147
  162
  177
  194
  212
  231
  251
  273
  296
  321
  347
  375
  405
  436
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
Earnings before tax, $m
  31
  24
  25
  27
  30
  33
  37
  42
  48
  54
  60
  75
  84
  93
  103
  114
  125
  138
  152
  167
  183
  199
  218
  237
  258
  280
  304
  329
  355
  384
  414
Tax expense, $m
  13
  6
  7
  7
  8
  9
  10
  11
  13
  14
  16
  20
  23
  25
  28
  31
  34
  37
  41
  45
  49
  54
  59
  64
  70
  76
  82
  89
  96
  104
  112
Net income, $m
  18
  17
  19
  20
  22
  24
  27
  31
  35
  39
  44
  55
  61
  68
  75
  83
  92
  101
  111
  122
  133
  146
  159
  173
  188
  204
  222
  240
  259
  280
  302

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  138
  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
  336
  203
  209
  215
  222
  229
  237
  246
  255
  265
  276
  287
  299
  312
  326
  340
  356
  372
  389
  407
  426
  446
  467
  489
  512
  537
  563
  590
  619
  649
  680
Adjusted assets (=assets-cash), $m
  198
  203
  209
  215
  222
  229
  237
  246
  255
  265
  276
  287
  299
  312
  326
  340
  356
  372
  389
  407
  426
  446
  467
  489
  512
  537
  563
  590
  619
  649
  680
Revenue / Adjusted assets
  1.646
  1.645
  1.641
  1.647
  1.644
  1.646
  1.646
  1.646
  1.647
  1.649
  1.645
  1.648
  1.649
  1.647
  1.644
  1.647
  1.643
  1.645
  1.645
  1.644
  1.646
  1.646
  1.645
  1.646
  1.646
  1.646
  1.645
  1.646
  1.645
  1.646
  1.647
Average production assets, $m
  27
  28
  28
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  45
  46
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
  85
  89
  93
Working capital, $m
  46
  -94
  -97
  -100
  -103
  -106
  -110
  -114
  -118
  -123
  -128
  -133
  -139
  -145
  -151
  -158
  -165
  -173
  -180
  -189
  -198
  -207
  -217
  -227
  -238
  -249
  -261
  -274
  -287
  -301
  -316
Total debt, $m
  0
  -3
  2
  7
  13
  20
  27
  35
  44
  53
  62
  73
  83
  95
  107
  120
  134
  149
  164
  180
  197
  215
  234
  254
  275
  297
  320
  345
  371
  398
  426
Total liabilities, $m
  186
  183
  188
  193
  199
  206
  213
  221
  230
  239
  248
  259
  269
  281
  293
  306
  320
  335
  350
  366
  383
  401
  420
  440
  461
  483
  506
  531
  557
  584
  612
Total equity, $m
  150
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Total liabilities and equity, $m
  336
  203
  209
  214
  221
  229
  237
  246
  256
  266
  276
  288
  299
  312
  326
  340
  356
  372
  389
  407
  426
  446
  467
  489
  512
  537
  562
  590
  619
  649
  680
Debt-to-equity ratio
  0.000
  -0.160
  0.080
  0.340
  0.610
  0.880
  1.160
  1.430
  1.710
  1.990
  2.260
  2.530
  2.790
  3.040
  3.290
  3.530
  3.770
  4.000
  4.220
  4.430
  4.630
  4.830
  5.010
  5.200
  5.370
  5.540
  5.690
  5.850
  5.990
  6.130
  6.270
Adjusted equity ratio
  0.061
  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
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  18
  17
  19
  20
  22
  24
  27
  31
  35
  39
  44
  55
  61
  68
  75
  83
  92
  101
  111
  122
  133
  146
  159
  173
  188
  204
  222
  240
  259
  280
  302
Depreciation, amort., depletion, $m
  9
  10
  10
  10
  10
  10
  10
  10
  10
  11
  11
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
Funds from operations, $m
  46
  27
  28
  30
  32
  34
  38
  41
  45
  50
  55
  59
  65
  72
  79
  87
  96
  105
  116
  127
  138
  151
  165
  179
  194
  211
  228
  247
  267
  288
  311
Change in working capital, $m
  4
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
Cash from operations, $m
  42
  27
  31
  33
  35
  38
  41
  45
  49
  54
  60
  64
  70
  78
  85
  94
  103
  113
  124
  135
  147
  160
  174
  189
  205
  222
  240
  260
  280
  302
  325
Maintenance CAPEX, $m
  0
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
New CAPEX, $m
  -4
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
Cash from investing activities, $m
  -18
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -11
  -11
  -11
  -12
  -12
Free cash flow, $m
  24
  24
  28
  29
  32
  34
  37
  41
  45
  50
  55
  59
  65
  72
  80
  88
  97
  106
  117
  128
  140
  152
  166
  181
  196
  213
  230
  249
  269
  290
  313
Issuance/(repayment) of debt, $m
  0
  -3
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
Issuance/(repurchase) of shares, $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 financing (excl. dividends), $m  
  16
  -3
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
Total cash flow (excl. dividends), $m
  37
  21
  33
  35
  38
  41
  45
  49
  54
  59
  65
  69
  76
  84
  92
  101
  111
  121
  132
  144
  157
  170
  185
  201
  217
  235
  254
  274
  295
  318
  342
Retained Cash Flow (-), $m
  -23
  -8
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
Prev. year cash balance distribution, $m
 
  138
  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
 
  151
  32
  34
  37
  40
  44
  48
  53
  58
  64
  68
  75
  82
  91
  99
  109
  119
  130
  142
  155
  168
  183
  198
  215
  232
  251
  271
  292
  315
  338
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
 
  144
  29
  30
  30
  31
  32
  32
  33
  33
  33
  32
  32
  31
  30
  29
  28
  26
  24
  22
  20
  17
  15
  13
  11
  9
  7
  6
  5
  3
  3
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
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Forrester Research Inc. operates as an independent research, data, and advisory services firm. It operates through Research, Product, and Project Consulting segments. The company’s primary syndicated research product is RoleView, which offers clients with access to its syndicated research designed to inform their strategic decision-making. The RoleView research offerings consist of cross-linked documents that interconnect the company’s reports, data, product rankings, best practices, evaluation tools, and research archives, which are provided through role-based Websites. It also offers Forrester Leadership Boards that are peer groups for executives and other senior leaders at large organizations. In addition, the company provides data products and services, including Customer Experience Index, a framework for assessing and measuring customer experience quality; Consumer Technographics that offers insights into how technology impacts the way consumers select, purchase, use, and communicate about products and services; Business Technographics, which provides assessments of what motivates businesses to choose certain technologies and vendors, as well as measures and reports on the current information consumption patterns of key influencers for large technology purchases; and ForecastView, an ongoing data program that provides a detailed evaluation of market size, based on expert analysis and quantitative insights from consumer and business surveys. Further, it offers consulting services to assist clients in developing and executing technology and business strategy, informing critical decisions, and reducing business risk, as well as hosts multiple events. The company sells its products and services through direct sales force in North America, Europe, Asia, and Australia; and through independent sales representatives in selected international locations. Forrester Research, Inc. was founded in 1983 and is headquartered in Cambridge, Massachusetts.

FINANCIAL RATIOS  of  Forrester Research (FORR)

Valuation Ratios
P/E Ratio 41.6
Price to Sales 2.3
Price to Book 5
Price to Tangible Book
Price to Cash Flow 17.8
Price to Free Cash Flow 19.7
Growth Rates
Sales Growth Rate 3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 5.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 13%
Ret/ On T. Cap. - 3 Yr. Avg. 9.4%
Return On Equity 13%
Return On Equity - 3 Yr. Avg. 9.4%
Asset Turnover 1
Profitability Ratios
Gross Margin 60.7%
Gross Margin - 3 Yr. Avg. 60%
EBITDA Margin 12.3%
EBITDA Margin - 3 Yr. Avg. 10.2%
Operating Margin 9.5%
Oper. Margin - 3 Yr. Avg. 7.1%
Pre-Tax Margin 9.5%
Pre-Tax Margin - 3 Yr. Avg. 7.1%
Net Profit Margin 5.5%
Net Profit Margin - 3 Yr. Avg. 4.3%
Effective Tax Rate 41.9%
Eff/ Tax Rate - 3 Yr. Avg. 39.2%
Payout Ratio 72.2%

FORR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FORR stock intrinsic value calculation we used $326 million for the last fiscal year's total revenue generated by Forrester Research. The default revenue input number comes from 2016 income statement of Forrester Research. 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 FORR stock valuation model: a) initial revenue growth rate of 2.5% 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 FORR is calculated based on our internal credit rating of Forrester Research, 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 Forrester Research.
    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 FORR stock the variable cost ratio is equal to 18.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $242 million in the base year in the intrinsic value calculation for FORR 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 Forrester Research.

Corporate tax rate of 27% is the nominal tax rate for Forrester Research. 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 FORR 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 FORR are equal to 8.3%.

Life of production assets of 11.2 years is the average useful life of capital assets used in Forrester Research 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 FORR is equal to -28.2%. 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 - $150 million for Forrester Research - 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 18.525 million for Forrester Research 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 Forrester Research at the current share price and the inputted number of shares is $0.8 billion.


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Stock chart of FORR Financial statements of FORR
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