Intrinsic value of Freshpet - FRPT

Previous Close

$15.95

  Intrinsic Value

$0.85

stock screener

  Rating & Target

str. sell

-95%

  Value-price divergence*

-144%

Previous close

$15.95

 
Intrinsic value

$0.85

 
Up/down potential

-95%

 
Rating

str. sell

 
Value-price divergence*

-144%

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

We calculate the intrinsic value of FRPT 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 0.5

 

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, %
  14.66
  12.90
  12.11
  11.40
  10.76
  10.18
  9.66
  9.20
  8.78
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
Revenue, $m
  133
  150
  168
  188
  208
  229
  251
  274
  298
  323
  349
  376
  404
  434
  464
  496
  529
  563
  598
  635
  674
  714
  756
  799
  845
  893
  942
  994
  1,049
  1,105
  1,165
Variable operating expenses, $m
 
  132
  148
  165
  183
  201
  221
  241
  262
  284
  307
  331
  356
  382
  408
  436
  465
  495
  526
  559
  593
  628
  665
  704
  744
  785
  829
  875
  923
  973
  1,025
Fixed operating expenses, $m
 
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  27
  28
  29
  29
  30
  31
  32
  33
  33
  34
  35
  36
  37
  38
Total operating expenses, $m
  135
  150
  167
  184
  203
  221
  242
  262
  284
  306
  330
  355
  380
  407
  433
  462
  492
  522
  554
  588
  622
  658
  696
  736
  777
  818
  863
  910
  959
  1,010
  1,063
Operating income, $m
  -2
  0
  1
  3
  5
  7
  9
  11
  14
  16
  19
  22
  24
  27
  30
  33
  37
  40
  44
  47
  51
  55
  60
  64
  69
  74
  79
  84
  90
  96
  102
EBITDA, $m
  8
  10
  13
  16
  19
  23
  27
  30
  34
  39
  43
  48
  52
  57
  62
  68
  73
  79
  85
  91
  98
  105
  112
  119
  127
  136
  144
  153
  162
  172
  183
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
Earnings before tax, $m
  -3
  -1
  1
  3
  5
  7
  9
  11
  13
  16
  18
  21
  23
  26
  29
  32
  35
  39
  42
  46
  49
  53
  57
  62
  66
  71
  76
  81
  87
  92
  98
Tax expense, $m
  0
  0
  0
  1
  1
  2
  2
  3
  4
  4
  5
  6
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  16
  17
  18
  19
  21
  22
  23
  25
  27
Net income, $m
  -3
  -1
  1
  2
  3
  5
  6
  8
  10
  11
  13
  15
  17
  19
  21
  23
  26
  28
  31
  33
  36
  39
  42
  45
  48
  52
  55
  59
  63
  67
  72

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  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
  126
  138
  154
  172
  191
  210
  230
  251
  274
  296
  320
  345
  371
  398
  426
  455
  485
  516
  549
  583
  618
  655
  693
  733
  775
  819
  865
  912
  962
  1,014
  1,068
Adjusted assets (=assets-cash), $m
  122
  138
  154
  172
  191
  210
  230
  251
  274
  296
  320
  345
  371
  398
  426
  455
  485
  516
  549
  583
  618
  655
  693
  733
  775
  819
  865
  912
  962
  1,014
  1,068
Revenue / Adjusted assets
  1.090
  1.087
  1.091
  1.093
  1.089
  1.090
  1.091
  1.092
  1.088
  1.091
  1.091
  1.090
  1.089
  1.090
  1.089
  1.090
  1.091
  1.091
  1.089
  1.089
  1.091
  1.090
  1.091
  1.090
  1.090
  1.090
  1.089
  1.090
  1.090
  1.090
  1.091
Average production assets, $m
  92
  104
  116
  130
  144
  158
  174
  190
  206
  224
  242
  260
  280
  300
  321
  343
  366
  389
  414
  440
  466
  494
  523
  553
  585
  618
  652
  688
  726
  765
  806
Working capital, $m
  0
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  21
  22
  23
  24
  25
  27
Total debt, $m
  7
  5
  7
  9
  11
  13
  15
  18
  20
  23
  26
  29
  32
  35
  38
  41
  45
  48
  52
  56
  60
  64
  69
  73
  78
  83
  88
  94
  100
  106
  112
Total liabilities, $m
  19
  16
  18
  20
  22
  24
  26
  29
  31
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  71
  75
  80
  84
  89
  94
  99
  105
  111
  117
  123
Total equity, $m
  108
  122
  137
  152
  169
  186
  204
  223
  242
  262
  284
  306
  328
  352
  377
  402
  429
  457
  486
  516
  547
  580
  614
  649
  686
  725
  765
  807
  851
  897
  946
Total liabilities and equity, $m
  127
  138
  155
  172
  191
  210
  230
  252
  273
  296
  321
  346
  371
  398
  426
  454
  485
  516
  549
  583
  618
  655
  694
  733
  775
  819
  864
  912
  962
  1,014
  1,069
Debt-to-equity ratio
  0.065
  0.040
  0.050
  0.060
  0.060
  0.070
  0.080
  0.080
  0.080
  0.090
  0.090
  0.090
  0.100
  0.100
  0.100
  0.100
  0.100
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.120
  0.120
Adjusted equity ratio
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3
  -1
  1
  2
  3
  5
  6
  8
  10
  11
  13
  15
  17
  19
  21
  23
  26
  28
  31
  33
  36
  39
  42
  45
  48
  52
  55
  59
  63
  67
  72
Depreciation, amort., depletion, $m
  10
  10
  12
  13
  14
  16
  17
  19
  21
  22
  24
  26
  28
  30
  32
  34
  37
  39
  41
  44
  47
  49
  52
  55
  58
  62
  65
  69
  73
  76
  81
Funds from operations, $m
  15
  10
  12
  15
  18
  21
  24
  27
  30
  34
  37
  41
  45
  49
  53
  58
  62
  67
  72
  77
  83
  88
  94
  100
  107
  114
  121
  128
  136
  144
  152
Change in working capital, $m
  2
  0
  0
  0
  0
  0
  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
Cash from operations, $m
  13
  9
  12
  15
  17
  20
  23
  26
  30
  33
  37
  40
  44
  48
  53
  57
  62
  66
  71
  76
  82
  87
  93
  99
  106
  113
  120
  127
  135
  143
  151
Maintenance CAPEX, $m
  0
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -41
  -44
  -47
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -73
  -76
New CAPEX, $m
  -30
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
Cash from investing activities, $m
  -27
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -61
  -64
  -67
  -71
  -75
  -78
  -82
  -87
  -91
  -96
  -101
  -107
  -112
  -117
Free cash flow, $m
  -14
  -12
  -11
  -10
  -10
  -9
  -8
  -7
  -6
  -5
  -4
  -2
  -1
  0
  2
  3
  5
  6
  8
  9
  11
  13
  15
  17
  19
  21
  23
  26
  28
  31
  33
Issuance/(repayment) of debt, $m
  7
  2
  2
  2
  2
  2
  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
Issuance/(repurchase) of shares, $m
  3
  14
  14
  13
  13
  12
  12
  11
  10
  9
  8
  7
  6
  5
  3
  2
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  10
  16
  16
  15
  15
  14
  14
  13
  13
  12
  11
  10
  9
  8
  6
  5
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
Total cash flow (excl. dividends), $m
  -4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  11
  13
  15
  17
  19
  21
  24
  26
  29
  31
  34
  37
  40
Retained Cash Flow (-), $m
  -4
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -48
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
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -17
  -17
  -16
  -15
  -15
  -14
  -13
  -12
  -12
  -11
  -10
  -9
  -9
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
  -9
  -9
  -9
  -9
  -8
  -8
  -8
  -7
  -7
  -6
  -6
  -6
  -5
  -5
  -4
  -3
  -3
  -2
  -2
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  97.2
  94.9
  93.0
  91.4
  90.0
  88.8
  87.8
  87.0
  86.3
  85.8
  85.3
  85.0
  84.7
  84.5
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4
  84.4

Freshpet, Inc. manufactures and markets natural fresh, refrigerated meals, and treats for dogs and cats in the United States and Canada. The company sells its products under the Freshpet brand, as well as under the Dognation and Dog Joy labels through various classes of retail, including grocery, mass, club, pet specialty, and natural. Freshpet, Inc. was incorporated in 2004 and is headquartered in Secaucus, New Jersey.

FINANCIAL RATIOS  of  Freshpet (FRPT)

Valuation Ratios
P/E Ratio -180.6
Price to Sales 4.1
Price to Book 5
Price to Tangible Book
Price to Cash Flow 41.7
Price to Free Cash Flow -31.9
Growth Rates
Sales Growth Rate 14.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 11.1%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 6.5%
Interest Coverage 0
Management Effectiveness
Return On Assets -2.5%
Ret/ On Assets - 3 Yr. Avg. -14.2%
Return On Total Capital -2.7%
Ret/ On T. Cap. - 3 Yr. Avg. -18.8%
Return On Equity -2.8%
Return On Equity - 3 Yr. Avg. -36%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 45.1%
Gross Margin - 3 Yr. Avg. 46.9%
EBITDA Margin 5.3%
EBITDA Margin - 3 Yr. Avg. -7.1%
Operating Margin -1.5%
Oper. Margin - 3 Yr. Avg. -3.9%
Pre-Tax Margin -2.3%
Pre-Tax Margin - 3 Yr. Avg. -16.1%
Net Profit Margin -2.3%
Net Profit Margin - 3 Yr. Avg. -16.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

FRPT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FRPT stock intrinsic value calculation we used $133 million for the last fiscal year's total revenue generated by Freshpet. The default revenue input number comes from 2016 income statement of Freshpet. 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 FRPT stock valuation model: a) initial revenue growth rate of 12.9% 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 FRPT is calculated based on our internal credit rating of Freshpet, 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 Freshpet.
    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 FRPT stock the variable cost ratio is equal to 88%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $18 million in the base year in the intrinsic value calculation for FRPT 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 Freshpet.

Corporate tax rate of 27% is the nominal tax rate for Freshpet. 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 FRPT 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 FRPT are equal to 69.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Freshpet 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 FRPT is equal to 2.3%. 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 - $108 million for Freshpet - 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 31.946 million for Freshpet 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 Freshpet at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Freshpet reports 2Q loss   [Aug-07-17 11:57PM  Associated Press]
▶ Story Stocks from Briefing.com   [Jun-16-17 09:39AM  Briefing.com]
▶ Why Freshpet, Inc. Stock Jumped 29% Last Month   [Jun-14-17 07:42AM  Motley Fool]
▶ ETFs with exposure to Freshpet Inc. : June 12, 2017   [Jun-12-17 02:05PM  Capital Cube]
▶ 3 Stocks That Feel Like Wal-Mart in 1970   [Jun-10-17 08:10PM  Motley Fool]
▶ ETFs with exposure to Freshpet Inc. : May 30, 2017   [May-30-17 12:28PM  Capital Cube]
▶ ETFs with exposure to Freshpet Inc. : May 16, 2017   [May-16-17 12:52PM  Capital Cube]
▶ Freshpet reports 1Q loss   [May-05-17 05:02AM  Associated Press]
▶ Freshpet, Inc. Reports First Quarter 2017 Financial Results   [May-04-17 04:05PM  GlobeNewswire]
▶ ETFs with exposure to Freshpet Inc. : April 27, 2017   [Apr-27-17 04:00PM  Capital Cube]
▶ Premium Pet Food Is the New Norm   [Mar-23-17 12:43PM  TheStreet.com]
▶ Freshpet meets 4Q profit forecasts   [Mar-09-17 04:46PM  Associated Press]
▶ Freshpet, Inc. to Participate in the 2017 ICR Conference   [Jan-03-17 04:05PM  GlobeNewswire]
▶ Is Freshpet Inc (FRPT) A Good Stock To Buy?   [Dec-16-16 11:12PM  at Insider Monkey]
▶ 5 Stocks Hedge Funds Are Betting Against Insiders   [Nov-30-16 10:18PM  at Insider Monkey]
▶ 6 Analyst Stocks Under $10 With Massive Upside Calls   [Aug-07-16 10:45AM  at 24/7 Wall St.]
▶ Former Sunny D CEO becomes leader of another firm   [Jul-28-16 01:14PM  at bizjournals.com]
Stock chart of FRPT Financial statements of FRPT
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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