Intrinsic value of Green Brick Partners - GRBK

Previous Close

$10.40

  Intrinsic Value

$6.98

stock screener

  Rating & Target

sell

-33%

  Value-price divergence*

+203%

Previous close

$10.40

 
Intrinsic value

$6.98

 
Up/down potential

-33%

 
Rating

sell

 
Value-price divergence*

+203%

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

We calculate the intrinsic value of GRBK 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, %
  30.58
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
Revenue, $m
  380
  403
  427
  453
  479
  506
  535
  565
  596
  628
  663
  698
  736
  775
  815
  858
  903
  950
  999
  1,051
  1,105
  1,162
  1,221
  1,284
  1,349
  1,418
  1,490
  1,565
  1,645
  1,728
  1,815
Variable operating expenses, $m
 
  335
  356
  376
  398
  421
  445
  470
  496
  523
  551
  581
  612
  644
  678
  714
  751
  791
  831
  874
  919
  967
  1,016
  1,068
  1,123
  1,180
  1,240
  1,302
  1,368
  1,438
  1,510
Fixed operating expenses, $m
 
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
  26
  27
  27
  28
  29
  29
  30
  31
  32
  32
  33
  34
  35
  36
Total operating expenses, $m
  333
  352
  374
  394
  417
  440
  465
  490
  517
  544
  573
  603
  635
  667
  702
  739
  776
  817
  858
  901
  947
  996
  1,045
  1,098
  1,154
  1,212
  1,272
  1,335
  1,402
  1,473
  1,546
Operating income, $m
  48
  50
  54
  58
  62
  66
  70
  75
  79
  84
  90
  95
  101
  107
  113
  120
  126
  134
  141
  149
  158
  167
  176
  186
  196
  207
  218
  230
  242
  255
  269
EBITDA, $m
  48
  50
  54
  58
  62
  66
  70
  75
  79
  84
  90
  95
  101
  107
  113
  120
  127
  134
  141
  149
  158
  167
  176
  186
  196
  207
  218
  230
  243
  256
  269
Interest expense (income), $m
  0
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
Earnings before tax, $m
  51
  49
  52
  55
  59
  63
  67
  71
  76
  80
  85
  90
  95
  101
  107
  113
  119
  126
  133
  141
  149
  157
  165
  175
  184
  194
  205
  216
  227
  240
  252
Tax expense, $m
  16
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  65
  68
Net income, $m
  24
  35
  38
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  82
  87
  92
  97
  103
  108
  114
  121
  127
  134
  142
  149
  157
  166
  175
  184

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  35
  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
  541
  537
  569
  603
  637
  674
  712
  752
  793
  837
  882
  930
  979
  1,031
  1,086
  1,143
  1,203
  1,265
  1,331
  1,399
  1,472
  1,547
  1,626
  1,709
  1,797
  1,888
  1,984
  2,084
  2,190
  2,301
  2,417
Adjusted assets (=assets-cash), $m
  506
  537
  569
  603
  637
  674
  712
  752
  793
  837
  882
  930
  979
  1,031
  1,086
  1,143
  1,203
  1,265
  1,331
  1,399
  1,472
  1,547
  1,626
  1,709
  1,797
  1,888
  1,984
  2,084
  2,190
  2,301
  2,417
Revenue / Adjusted assets
  0.751
  0.750
  0.750
  0.751
  0.752
  0.751
  0.751
  0.751
  0.752
  0.750
  0.752
  0.751
  0.752
  0.752
  0.750
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
Average production assets, $m
  1
  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
  2
  2
  2
  2
Working capital, $m
  0
  42
  45
  48
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  110
  116
  122
  128
  135
  142
  149
  156
  164
  173
  181
  191
Total debt, $m
  86
  58
  66
  74
  82
  91
  100
  110
  120
  130
  141
  152
  164
  177
  190
  203
  217
  232
  248
  264
  282
  300
  319
  339
  359
  381
  404
  428
  453
  480
  508
Total liabilities, $m
  156
  128
  136
  144
  152
  161
  170
  180
  190
  200
  211
  222
  234
  247
  260
  273
  287
  302
  318
  334
  352
  370
  389
  409
  429
  451
  474
  498
  523
  550
  578
Total equity, $m
  385
  409
  433
  459
  485
  513
  542
  572
  604
  637
  671
  707
  745
  785
  826
  870
  915
  963
  1,013
  1,065
  1,120
  1,177
  1,238
  1,301
  1,367
  1,437
  1,510
  1,586
  1,667
  1,751
  1,839
Total liabilities and equity, $m
  541
  537
  569
  603
  637
  674
  712
  752
  794
  837
  882
  929
  979
  1,032
  1,086
  1,143
  1,202
  1,265
  1,331
  1,399
  1,472
  1,547
  1,627
  1,710
  1,796
  1,888
  1,984
  2,084
  2,190
  2,301
  2,417
Debt-to-equity ratio
  0.223
  0.140
  0.150
  0.160
  0.170
  0.180
  0.180
  0.190
  0.200
  0.200
  0.210
  0.220
  0.220
  0.220
  0.230
  0.230
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.270
  0.270
  0.280
Adjusted equity ratio
  0.692
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24
  35
  38
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  82
  87
  92
  97
  103
  108
  114
  121
  127
  134
  142
  149
  157
  166
  175
  184
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
  -64
  35
  38
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
  92
  97
  103
  109
  115
  121
  128
  135
  142
  150
  158
  166
  175
  184
Change in working capital, $m
  -57
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
Cash from operations, $m
  -7
  33
  35
  38
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
  92
  97
  103
  109
  115
  121
  128
  135
  142
  150
  158
  166
  175
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
  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
Cash from investing activities, $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
Free cash flow, $m
  -7
  33
  35
  38
  40
  43
  46
  49
  52
  55
  58
  62
  66
  70
  74
  78
  82
  87
  92
  97
  103
  108
  114
  121
  127
  134
  142
  149
  158
  166
  175
Issuance/(repayment) of debt, $m
  28
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  21
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Total cash flow (excl. dividends), $m
  14
  40
  43
  46
  49
  52
  55
  58
  62
  65
  69
  73
  78
  82
  87
  92
  97
  102
  108
  114
  120
  126
  133
  141
  148
  156
  165
  174
  183
  193
  203
Retained Cash Flow (-), $m
  -25
  -24
  -24
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -70
  -73
  -77
  -80
  -84
  -88
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
 
  17
  19
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  58
  61
  65
  69
  73
  77
  82
  87
  92
  97
  102
  108
  114
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
 
  16
  17
  18
  18
  19
  19
  19
  19
  19
  18
  18
  17
  16
  15
  14
  13
  12
  11
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
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Green Brick Partners, Inc. operates in the real estate industry. The Company operates through two segments. The builder operations segment includes its controlled builders results, which include building and selling single-family detached homes and townhomes that are designed and built to meet local customer preferences, and the sale of lots. Builder operations consist of three operating segments: Texas, Georgia, and corporate and other. Corporate operations segment develops and implements strategic initiatives and supports its builder operations and land development by centralizing certain administrative functions, such as finance, treasury, information technology and human resources. The land development segment includes operations related to the acquisition and development of land, which is sold to its controlled builders and third-party homebuilders. As of December 31, 2016, it had owned or controlled over 5,200 home sites in various locations in the Dallas and Atlanta markets.

FINANCIAL RATIOS  of  Green Brick Partners (GRBK)

Valuation Ratios
P/E Ratio 21.2
Price to Sales 1.3
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow -72.7
Price to Free Cash Flow -72.7
Growth Rates
Sales Growth Rate 30.6%
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 NaN
LT Debt to Equity 2.9%
Total Debt to Equity 22.3%
Interest Coverage 0
Management Effectiveness
Return On Assets 4.7%
Ret/ On Assets - 3 Yr. Avg. 8%
Return On Total Capital 5.4%
Ret/ On T. Cap. - 3 Yr. Avg. 8.8%
Return On Equity 6.4%
Return On Equity - 3 Yr. Avg. 13.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 22.6%
Gross Margin - 3 Yr. Avg. 22.5%
EBITDA Margin 13.4%
EBITDA Margin - 3 Yr. Avg. 14%
Operating Margin 12.4%
Oper. Margin - 3 Yr. Avg. 12.7%
Pre-Tax Margin 13.4%
Pre-Tax Margin - 3 Yr. Avg. 13.4%
Net Profit Margin 6.3%
Net Profit Margin - 3 Yr. Avg. 10.6%
Effective Tax Rate 31.4%
Eff/ Tax Rate - 3 Yr. Avg. -4.1%
Payout Ratio 0%

GRBK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GRBK stock intrinsic value calculation we used $380 million for the last fiscal year's total revenue generated by Green Brick Partners. The default revenue input number comes from 2016 income statement of Green Brick Partners. 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 GRBK stock valuation model: a) initial revenue growth rate of 6.1% 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 GRBK is calculated based on our internal credit rating of Green Brick Partners, 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 Green Brick Partners.
    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 GRBK stock the variable cost ratio is equal to 83.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $17 million in the base year in the intrinsic value calculation for GRBK 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 Green Brick Partners.

Corporate tax rate of 27% is the nominal tax rate for Green Brick Partners. 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 GRBK 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 GRBK are equal to 0.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Green Brick Partners 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 GRBK is equal to 10.5%. 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 - $385 million for Green Brick Partners - 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 50.163 million for Green Brick Partners 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 Green Brick Partners at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

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▶ Green Brick Partners Expands into Colorado   [Aug-15-17 12:56PM  Marketwired]
▶ Green Brick Partners posts 2Q profit   [Aug-07-17 11:58PM  Associated Press]
▶ Green Brick Partners posts 1Q profit   [May-08-17 05:42PM  Associated Press]
▶ Green Brick Partners posts 4Q profit   [Mar-13-17 04:47PM  Associated Press]
▶ Public company bets $75 million on metro Atlanta housing market   [Apr-06-16 05:40PM  at bizjournals.com]
▶ Billionaire Dan Loebs Top Long-Term Holdings   [Apr-04-16 12:05PM  at Insider Monkey]
Financial statements of GRBK
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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