Intrinsic value of Gulf Resources Inc - GURE

Previous Close

$1.84

  Intrinsic Value

$10.51

stock screener

  Rating & Target

str. buy

+471%

  Value-price divergence*

-21%

Previous close

$1.84

 
Intrinsic value

$10.51

 
Up/down potential

+471%

 
Rating

str. buy

 
Value-price divergence*

-21%

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

We calculate the intrinsic value of GURE 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 0.1

 

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, %
  -8.02
  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
  149
  152
  155
  159
  164
  169
  174
  180
  187
  194
  201
  209
  218
  227
  236
  246
  257
  269
  281
  293
  307
  321
  336
  352
  369
  386
  405
  424
  445
  466
  489
Variable operating expenses, $m
 
  110
  113
  115
  119
  122
  126
  130
  135
  140
  145
  148
  154
  160
  167
  174
  182
  190
  198
  207
  217
  227
  237
  249
  260
  273
  286
  300
  314
  329
  345
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
  102
  110
  113
  115
  119
  122
  126
  130
  135
  140
  145
  148
  154
  160
  167
  174
  182
  190
  198
  207
  217
  227
  237
  249
  260
  273
  286
  300
  314
  329
  345
Operating income, $m
  48
  42
  43
  44
  45
  47
  48
  50
  52
  54
  56
  61
  64
  67
  69
  72
  76
  79
  82
  86
  90
  94
  99
  103
  108
  113
  119
  125
  131
  137
  144
EBITDA, $m
  73
  58
  59
  61
  62
  64
  66
  68
  71
  74
  76
  79
  83
  86
  90
  94
  98
  102
  107
  111
  117
  122
  128
  134
  140
  147
  154
  161
  169
  177
  186
Interest expense (income), $m
  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
  1
  1
  1
  1
Earnings before tax, $m
  48
  42
  43
  44
  45
  47
  48
  50
  52
  54
  56
  61
  64
  66
  69
  72
  75
  78
  82
  86
  90
  94
  98
  103
  107
  113
  118
  124
  129
  136
  142
Tax expense, $m
  12
  11
  12
  12
  12
  13
  13
  14
  14
  15
  15
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  38
Net income, $m
  36
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
  45
  46
  48
  50
  53
  55
  57
  60
  63
  65
  68
  72
  75
  78
  82
  86
  90
  94
  99
  104

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  164
  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
  366
  206
  211
  216
  222
  229
  236
  244
  253
  262
  273
  283
  295
  307
  320
  334
  348
  364
  380
  398
  416
  435
  456
  477
  500
  523
  548
  575
  602
  632
  662
Adjusted assets (=assets-cash), $m
  202
  206
  211
  216
  222
  229
  236
  244
  253
  262
  273
  283
  295
  307
  320
  334
  348
  364
  380
  398
  416
  435
  456
  477
  500
  523
  548
  575
  602
  632
  662
Revenue / Adjusted assets
  0.738
  0.738
  0.735
  0.736
  0.739
  0.738
  0.737
  0.738
  0.739
  0.740
  0.736
  0.739
  0.739
  0.739
  0.738
  0.737
  0.739
  0.739
  0.739
  0.736
  0.738
  0.738
  0.737
  0.738
  0.738
  0.738
  0.739
  0.737
  0.739
  0.737
  0.739
Average production assets, $m
  64
  65
  67
  69
  71
  73
  75
  78
  80
  83
  86
  90
  94
  97
  102
  106
  111
  115
  121
  126
  132
  138
  145
  151
  159
  166
  174
  182
  191
  200
  210
Working capital, $m
  208
  45
  46
  47
  48
  50
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  138
  144
Total debt, $m
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  36
  38
  41
Total liabilities, $m
  16
  17
  18
  18
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44
  46
  48
  51
  53
  56
Total equity, $m
  349
  189
  193
  198
  204
  210
  216
  224
  232
  240
  250
  259
  270
  281
  293
  306
  319
  333
  348
  364
  381
  399
  417
  437
  458
  479
  502
  526
  552
  579
  607
Total liabilities and equity, $m
  365
  206
  211
  216
  223
  229
  236
  245
  253
  262
  273
  283
  295
  307
  320
  334
  348
  364
  380
  397
  416
  436
  455
  477
  500
  523
  548
  574
  603
  632
  663
Debt-to-equity ratio
  0.006
  0.010
  0.010
  0.020
  0.020
  0.020
  0.020
  0.020
  0.030
  0.030
  0.030
  0.030
  0.040
  0.040
  0.040
  0.040
  0.040
  0.050
  0.050
  0.050
  0.050
  0.050
  0.060
  0.060
  0.060
  0.060
  0.060
  0.060
  0.060
  0.070
  0.070
Adjusted equity ratio
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916
  0.916

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  36
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
  45
  46
  48
  50
  53
  55
  57
  60
  63
  65
  68
  72
  75
  78
  82
  86
  90
  94
  99
  104
Depreciation, amort., depletion, $m
  25
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
Funds from operations, $m
  49
  46
  47
  49
  50
  51
  53
  55
  57
  59
  61
  63
  65
  68
  71
  74
  77
  80
  84
  88
  92
  96
  100
  105
  110
  115
  121
  127
  133
  139
  146
Change in working capital, $m
  -6
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Cash from operations, $m
  55
  45
  46
  47
  49
  50
  51
  53
  55
  57
  59
  60
  63
  65
  68
  71
  74
  77
  80
  84
  88
  92
  96
  100
  105
  110
  115
  121
  127
  133
  139
Maintenance CAPEX, $m
  0
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
New CAPEX, $m
  -17
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Cash from investing activities, $m
  -15
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -20
  -22
  -23
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -40
  -41
  -43
  -45
  -47
  -50
Free cash flow, $m
  40
  31
  32
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  81
  85
  89
Issuance/(repayment) of debt, $m
  0
  0
  0
  0
  1
  1
  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
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  
  0
  0
  0
  0
  1
  1
  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
Total cash flow (excl. dividends), $m
  30
  32
  32
  33
  33
  34
  35
  36
  37
  38
  40
  40
  42
  44
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
Retained Cash Flow (-), $m
  -11
  -4
  -4
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
Prev. year cash balance distribution, $m
 
  164
  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
 
  192
  28
  28
  28
  28
  28
  29
  29
  30
  31
  31
  31
  32
  33
  35
  36
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
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
 
  184
  26
  24
  23
  22
  21
  19
  18
  17
  16
  15
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  4
  3
  2
  2
  2
  1
  1
  1
  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
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Gulf Resources, Inc. is a holding company. The Company manufactures and trades bromine and crude salt; manufactures and sells chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, wastewater processing, papermaking chemical agents and inorganic chemicals, and manufactures and sells materials for human and animal antibiotics. The Company operates in three segments: bromine, crude salt and chemical products. Crude salt is the principal material in alkali production, as well as chlorine alkali production and is used in the chemical, food and beverage, and other industries. Its Chemical products include Hydroxyl guar gum, Demulsified agent, Corrosion inhibitor for acidizing, Bactericide, Iron ion stabilizer, Flocculants agent, Bromopropane, Solid lubricant, Polyether lubricant and Chlorantraniliprole. Its production sites are located in the Shandong Province in northeastern China.

FINANCIAL RATIOS  of  Gulf Resources Inc (GURE)

Valuation Ratios
P/E Ratio 2.4
Price to Sales 0.6
Price to Book 0.2
Price to Tangible Book
Price to Cash Flow 1.6
Price to Free Cash Flow 2.3
Growth Rates
Sales Growth Rate -8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -26.1%
Cap. Spend. - 3 Yr. Gr. Rate 41.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0.6%
Total Debt to Equity 0.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 10%
Ret/ On Assets - 3 Yr. Avg. 8.6%
Return On Total Capital 10.4%
Ret/ On T. Cap. - 3 Yr. Avg. 8.9%
Return On Equity 10.5%
Return On Equity - 3 Yr. Avg. 9%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 36.2%
Gross Margin - 3 Yr. Avg. 32.3%
EBITDA Margin 49%
EBITDA Margin - 3 Yr. Avg. 46.8%
Operating Margin 31.5%
Oper. Margin - 3 Yr. Avg. 26.8%
Pre-Tax Margin 32.2%
Pre-Tax Margin - 3 Yr. Avg. 27%
Net Profit Margin 24.2%
Net Profit Margin - 3 Yr. Avg. 20.3%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 24.8%
Payout Ratio 0%

GURE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GURE stock intrinsic value calculation we used $149 million for the last fiscal year's total revenue generated by Gulf Resources Inc. The default revenue input number comes from 2016 income statement of Gulf Resources Inc. 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 GURE 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 GURE is calculated based on our internal credit rating of Gulf Resources Inc, 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 Gulf Resources Inc.
    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 GURE stock the variable cost ratio is equal to 72.5%.

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 GURE 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 Gulf Resources Inc.

Corporate tax rate of 27% is the nominal tax rate for Gulf Resources Inc. 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 GURE 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 GURE are equal to 43%.

Life of production assets of 3.7 years is the average useful life of capital assets used in Gulf Resources Inc 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 GURE is equal to 29.5%. 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 - $349 million for Gulf Resources Inc - 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 46.541 million for Gulf Resources Inc 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 Gulf Resources Inc at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Is Gulf Resources Inc (GURE) Cheap And High Growth?   [Sep-26-17 08:58AM  Simply Wall St.]
▶ Gulf Resources posts 2Q profit   [Aug-11-17 09:57PM  Associated Press]
▶ Gulf Resources posts 1Q profit   [May-12-17 04:51PM  Associated Press]
▶ Gulf Resources Announces First Natural Gas Customer   [May-03-17 08:30AM  GlobeNewswire]
▶ 5 Top Stocks for Value Composite Watchlist   [Oct-05-16 12:23PM  GuruFocus.com]
▶ Gulf Resources Website Issues   [08:00AM  GlobeNewswire]
▶ The Top 5 Micro Cap Basic Material Stocks for 2016 (GURE,ODC)   [Jan-27-16 06:12AM  at Investopedia]
▶ Hedge Funds Are Selling Verastem Inc (VSTM)   [Nov-24  04:18PM  at Insider Monkey]
▶ Gulf Resources Reaffirms Earnings Guidance for 2015   [Jul-27  08:30AM  GlobeNewswire]
Financial statements of GURE
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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