Intrinsic value of Gladstone Commercial - GOOD

Previous Close

$20.76

  Intrinsic Value

$3.12

stock screener

  Rating & Target

str. sell

-85%

  Value-price divergence*

+19%

Previous close

$20.76

 
Intrinsic value

$3.12

 
Up/down potential

-85%

 
Rating

str. sell

 
Value-price divergence*

+19%

Our model is not good at valuating stocks of financial companies, such as GOOD.

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

We calculate the intrinsic value of GOOD 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, %
  2.38
  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
  86
  88
  90
  92
  95
  98
  101
  104
  108
  112
  116
  121
  126
  131
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
  269
  282
Variable operating expenses, $m
 
  53
  54
  56
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  123
  129
  135
  141
  148
  155
  163
  171
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
  56
  53
  54
  56
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  123
  129
  135
  141
  148
  155
  163
  171
Operating income, $m
  31
  35
  35
  36
  37
  39
  40
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  101
  106
  111
EBITDA, $m
  69
  73
  75
  77
  79
  82
  84
  87
  90
  94
  97
  101
  105
  110
  114
  119
  124
  130
  136
  142
  148
  155
  163
  170
  178
  187
  196
  205
  215
  225
  236
Interest expense (income), $m
  25
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  39
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
  71
  74
  78
Earnings before tax, $m
  4
  11
  11
  11
  12
  12
  13
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
Tax expense, $m
  0
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
Net income, $m
  4
  8
  8
  8
  9
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  21
  22
  24
  25

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
  0
  0
  0
  0
  0
Total assets, $m
  852
  860
  880
  902
  928
  956
  987
  1,020
  1,057
  1,096
  1,138
  1,183
  1,231
  1,282
  1,336
  1,394
  1,455
  1,520
  1,588
  1,661
  1,737
  1,817
  1,902
  1,992
  2,086
  2,185
  2,290
  2,400
  2,516
  2,638
  2,766
Adjusted assets (=assets-cash), $m
  847
  860
  880
  902
  928
  956
  987
  1,020
  1,057
  1,096
  1,138
  1,183
  1,231
  1,282
  1,336
  1,394
  1,455
  1,520
  1,588
  1,661
  1,737
  1,817
  1,902
  1,992
  2,086
  2,185
  2,290
  2,400
  2,516
  2,638
  2,766
Revenue / Adjusted assets
  0.102
  0.102
  0.102
  0.102
  0.102
  0.103
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
Average production assets, $m
  785
  800
  819
  840
  863
  889
  918
  949
  983
  1,020
  1,059
  1,101
  1,145
  1,193
  1,243
  1,297
  1,354
  1,414
  1,478
  1,545
  1,616
  1,691
  1,770
  1,853
  1,941
  2,033
  2,131
  2,233
  2,341
  2,454
  2,573
Working capital, $m
  0
  -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
  -14
  -14
  -15
  -16
  -16
Total debt, $m
  509
  518
  530
  545
  561
  579
  599
  620
  643
  668
  695
  724
  755
  787
  822
  859
  898
  939
  983
  1,029
  1,078
  1,129
  1,184
  1,241
  1,301
  1,364
  1,431
  1,502
  1,576
  1,653
  1,735
Total liabilities, $m
  541
  550
  562
  577
  593
  611
  631
  652
  675
  700
  727
  756
  787
  819
  854
  891
  930
  971
  1,015
  1,061
  1,110
  1,161
  1,216
  1,273
  1,333
  1,396
  1,463
  1,534
  1,608
  1,685
  1,767
Total equity, $m
  311
  310
  318
  326
  335
  345
  356
  368
  381
  396
  411
  427
  444
  463
  482
  503
  525
  549
  573
  599
  627
  656
  687
  719
  753
  789
  827
  866
  908
  952
  998
Total liabilities and equity, $m
  852
  860
  880
  903
  928
  956
  987
  1,020
  1,056
  1,096
  1,138
  1,183
  1,231
  1,282
  1,336
  1,394
  1,455
  1,520
  1,588
  1,660
  1,737
  1,817
  1,903
  1,992
  2,086
  2,185
  2,290
  2,400
  2,516
  2,637
  2,765
Debt-to-equity ratio
  1.637
  1.670
  1.670
  1.670
  1.670
  1.680
  1.680
  1.680
  1.690
  1.690
  1.690
  1.700
  1.700
  1.700
  1.700
  1.710
  1.710
  1.710
  1.710
  1.720
  1.720
  1.720
  1.720
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.740
  1.740
Adjusted equity ratio
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  8
  8
  8
  9
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  21
  22
  24
  25
Depreciation, amort., depletion, $m
  38
  39
  40
  41
  42
  43
  45
  46
  48
  50
  51
  53
  56
  58
  60
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
Funds from operations, $m
  38
  47
  48
  49
  51
  52
  54
  56
  58
  60
  62
  64
  67
  70
  73
  76
  79
  83
  86
  90
  94
  99
  103
  108
  113
  118
  124
  130
  136
  143
  150
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
  41
  47
  48
  49
  51
  52
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  108
  114
  119
  125
  131
  137
  143
  150
Maintenance CAPEX, $m
  0
  -38
  -39
  -40
  -41
  -42
  -43
  -45
  -46
  -48
  -50
  -51
  -53
  -56
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -103
  -108
  -114
  -119
New CAPEX, $m
  -72
  -16
  -18
  -21
  -24
  -26
  -29
  -31
  -34
  -36
  -39
  -42
  -45
  -48
  -51
  -54
  -57
  -60
  -64
  -67
  -71
  -75
  -79
  -83
  -88
  -92
  -97
  -102
  -108
  -113
  -119
Cash from investing activities, $m
  -59
  -54
  -57
  -61
  -65
  -68
  -72
  -76
  -80
  -84
  -89
  -93
  -98
  -104
  -109
  -114
  -120
  -126
  -133
  -139
  -146
  -153
  -161
  -169
  -178
  -186
  -196
  -205
  -216
  -227
  -238
Free cash flow, $m
  -18
  -7
  -9
  -12
  -14
  -16
  -18
  -20
  -22
  -24
  -26
  -29
  -31
  -33
  -35
  -38
  -40
  -43
  -46
  -48
  -51
  -54
  -57
  -61
  -64
  -68
  -71
  -75
  -79
  -84
  -88
Issuance/(repayment) of debt, $m
  -16
  9
  13
  14
  16
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
Issuance/(repurchase) of shares, $m
  80
  0
  0
  0
  1
  1
  2
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  22
Cash from financing (excl. dividends), $m  
  59
  9
  13
  14
  17
  19
  22
  24
  26
  29
  32
  34
  37
  40
  42
  45
  48
  50
  54
  57
  61
  64
  67
  71
  75
  79
  84
  88
  93
  98
  104
Total cash flow (excl. dividends), $m
  42
  2
  3
  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
  15
Retained Cash Flow (-), $m
  -77
  -4
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
Prev. year cash balance distribution, $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
  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
 
  2
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
Discount rate, %
 
  10.10
  10.61
  11.14
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.05
  20.00
  21.00
  22.05
  23.15
  24.31
  25.52
  26.80
  28.14
  29.55
  31.02
  32.57
  34.20
  35.91
  37.71
  39.59
  41.57
PV of cash for distribution, $m
 
  2
  -3
  -4
  -4
  -4
  -4
  -3
  -3
  -3
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  99.9
  99.7
  99.3
  98.9
  98.3
  97.7
  97.0
  96.3
  95.5
  94.6
  93.8
  92.8
  91.9
  90.9
  89.9
  88.9
  87.8
  86.8
  85.7
  84.6
  83.6
  82.5
  81.4
  80.4
  79.3
  78.2
  77.2

Gladstone Commercial Corporation operates as a real estate investment trust (REIT) in the United States. It engages in investing in and owning net leased industrial and commercial real properties, and making long-term industrial and commercial mortgage loans. The company leases its real estate properties to small businesses, as well as to large public companies. As of December 31, 2009, it owned 64 properties, and held 1 mortgage loan. The company qualifies as a REIT under the Internal Revenue Code of 1986. As a REIT, it would not be subject to federal tax to the extent that it distributes at least 90% of its taxable income to its shareholders. The company was founded in 2003 and is based in McLean, Virginia.

FINANCIAL RATIOS  of  Gladstone Commercial (GOOD)

Valuation Ratios
P/E Ratio 134.1
Price to Sales 6.2
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 13.1
Price to Free Cash Flow -17.3
Growth Rates
Sales Growth Rate 2.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.3%
Cap. Spend. - 3 Yr. Gr. Rate -11.9%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 163.7%
Total Debt to Equity 163.7%
Interest Coverage 1
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 0.1%
Return On Equity 1.5%
Return On Equity - 3 Yr. Avg. 0.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 89.5%
Gross Margin - 3 Yr. Avg. 89.3%
EBITDA Margin 77.9%
EBITDA Margin - 3 Yr. Avg. 75.9%
Operating Margin 34.9%
Oper. Margin - 3 Yr. Avg. 34.6%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 0.4%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 0.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 1050%

GOOD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GOOD stock intrinsic value calculation we used $86 million for the last fiscal year's total revenue generated by Gladstone Commercial. The default revenue input number comes from 2016 income statement of Gladstone Commercial. 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 GOOD 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 10.1%, whose default value for GOOD is calculated based on our internal credit rating of Gladstone Commercial, 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 Gladstone Commercial.
    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 GOOD stock the variable cost ratio is equal to 60.5%.

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 GOOD 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 4.7% for Gladstone Commercial.

Corporate tax rate of 27% is the nominal tax rate for Gladstone Commercial. 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 GOOD 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 GOOD are equal to 912.2%.

Life of production assets of 20.6 years is the average useful life of capital assets used in Gladstone Commercial 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 GOOD is equal to -5.8%. 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 - $311 million for Gladstone Commercial - 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 24.894 million for Gladstone Commercial 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 Gladstone Commercial at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Gladstone Commercial reports 2Q results   [Jul-31-17 10:46PM  Associated Press]
▶ Gladstone Commercial reports 1Q results   [May-02-17 06:53PM  Associated Press]
▶ Gladstone Commercial reports 4Q results   [Feb-15-17 06:04PM  Associated Press]
▶ Is Gladstone Commercial Corporation (GOOD) A Good Stock To Buy?   [Dec-12-16 04:09AM  at Insider Monkey]
Stock chart of GOOD Financial statements of GOOD
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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