Intrinsic value of HealthStream - HSTM

Previous Close

$22.97

  Intrinsic Value

$10.11

stock screener

  Rating & Target

str. sell

-56%

Previous close

$22.97

 
Intrinsic value

$10.11

 
Up/down potential

-56%

 
Rating

str. sell

We calculate the intrinsic value of HSTM 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 0.7

 

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, %
  8.13
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
Revenue, $m
  226
  251
  276
  304
  332
  361
  392
  424
  457
  491
  527
  564
  603
  643
  685
  728
  774
  821
  870
  921
  975
  1,030
  1,088
  1,149
  1,213
  1,279
  1,348
  1,421
  1,497
  1,576
  1,659
Variable operating expenses, $m
 
  233
  256
  280
  305
  331
  358
  386
  415
  446
  478
  500
  534
  569
  606
  645
  685
  727
  770
  816
  863
  912
  964
  1,017
  1,074
  1,132
  1,194
  1,258
  1,325
  1,396
  1,469
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
  220
  233
  256
  280
  305
  331
  358
  386
  415
  446
  478
  500
  534
  569
  606
  645
  685
  727
  770
  816
  863
  912
  964
  1,017
  1,074
  1,132
  1,194
  1,258
  1,325
  1,396
  1,469
Operating income, $m
  6
  18
  21
  24
  27
  30
  34
  38
  41
  45
  49
  65
  69
  74
  79
  84
  89
  94
  100
  106
  112
  118
  125
  132
  139
  147
  155
  163
  172
  181
  190
EBITDA, $m
  28
  41
  45
  49
  54
  59
  64
  69
  74
  80
  86
  92
  98
  104
  111
  118
  126
  133
  141
  150
  158
  167
  177
  187
  197
  208
  219
  231
  243
  256
  270
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
Earnings before tax, $m
  6
  18
  20
  23
  26
  29
  32
  35
  38
  41
  45
  60
  63
  67
  71
  76
  80
  85
  90
  95
  100
  105
  111
  117
  123
  130
  137
  144
  151
  159
  167
Tax expense, $m
  2
  5
  5
  6
  7
  8
  9
  9
  10
  11
  12
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  45
Net income, $m
  4
  13
  15
  17
  19
  21
  23
  25
  28
  30
  33
  43
  46
  49
  52
  55
  59
  62
  65
  69
  73
  77
  81
  85
  90
  95
  100
  105
  110
  116
  122

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  103
  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
  396
  325
  359
  394
  430
  468
  508
  550
  593
  637
  684
  732
  782
  834
  888
  945
  1,003
  1,065
  1,128
  1,195
  1,264
  1,336
  1,412
  1,490
  1,573
  1,659
  1,749
  1,843
  1,941
  2,044
  2,152
Adjusted assets (=assets-cash), $m
  293
  325
  359
  394
  430
  468
  508
  550
  593
  637
  684
  732
  782
  834
  888
  945
  1,003
  1,065
  1,128
  1,195
  1,264
  1,336
  1,412
  1,490
  1,573
  1,659
  1,749
  1,843
  1,941
  2,044
  2,152
Revenue / Adjusted assets
  0.771
  0.772
  0.769
  0.772
  0.772
  0.771
  0.772
  0.771
  0.771
  0.771
  0.770
  0.770
  0.771
  0.771
  0.771
  0.770
  0.772
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
Average production assets, $m
  94
  104
  115
  126
  138
  150
  163
  176
  190
  204
  219
  235
  251
  268
  285
  303
  322
  341
  362
  383
  405
  429
  453
  478
  504
  532
  561
  591
  623
  656
  690
Working capital, $m
  82
  -23
  -26
  -28
  -31
  -34
  -36
  -39
  -42
  -46
  -49
  -52
  -56
  -60
  -64
  -68
  -72
  -76
  -81
  -86
  -91
  -96
  -101
  -107
  -113
  -119
  -125
  -132
  -139
  -147
  -154
Total debt, $m
  0
  12
  24
  38
  51
  66
  81
  96
  112
  129
  146
  164
  183
  203
  223
  244
  266
  289
  313
  338
  364
  391
  419
  449
  480
  512
  546
  581
  618
  657
  697
Total liabilities, $m
  110
  122
  134
  148
  161
  176
  191
  206
  222
  239
  256
  274
  293
  313
  333
  354
  376
  399
  423
  448
  474
  501
  529
  559
  590
  622
  656
  691
  728
  767
  807
Total equity, $m
  286
  203
  224
  246
  269
  293
  318
  343
  370
  398
  427
  457
  489
  521
  555
  590
  627
  665
  705
  747
  790
  835
  882
  932
  983
  1,037
  1,093
  1,152
  1,213
  1,278
  1,345
Total liabilities and equity, $m
  396
  325
  358
  394
  430
  469
  509
  549
  592
  637
  683
  731
  782
  834
  888
  944
  1,003
  1,064
  1,128
  1,195
  1,264
  1,336
  1,411
  1,491
  1,573
  1,659
  1,749
  1,843
  1,941
  2,045
  2,152
Debt-to-equity ratio
  0.000
  0.060
  0.110
  0.150
  0.190
  0.220
  0.250
  0.280
  0.300
  0.320
  0.340
  0.360
  0.370
  0.390
  0.400
  0.410
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.480
  0.490
  0.490
  0.500
  0.500
  0.510
  0.510
  0.520
Adjusted equity ratio
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  13
  15
  17
  19
  21
  23
  25
  28
  30
  33
  43
  46
  49
  52
  55
  59
  62
  65
  69
  73
  77
  81
  85
  90
  95
  100
  105
  110
  116
  122
Depreciation, amort., depletion, $m
  22
  23
  24
  26
  27
  28
  30
  31
  33
  34
  36
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  72
  75
  79
Funds from operations, $m
  17
  36
  39
  42
  46
  49
  53
  57
  61
  65
  69
  70
  75
  80
  85
  90
  96
  101
  107
  113
  120
  126
  133
  140
  148
  156
  164
  173
  182
  192
  201
Change in working capital, $m
  -7
  -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
  -6
  -7
  -7
  -7
  -8
Cash from operations, $m
  24
  38
  41
  45
  48
  52
  56
  60
  64
  68
  72
  74
  79
  84
  89
  94
  100
  106
  112
  118
  125
  131
  139
  146
  154
  162
  171
  180
  189
  199
  209
Maintenance CAPEX, $m
  0
  -11
  -12
  -13
  -15
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -72
  -75
New CAPEX, $m
  -15
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
Cash from investing activities, $m
  -57
  -21
  -23
  -24
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -46
  -48
  -51
  -54
  -57
  -59
  -63
  -66
  -70
  -73
  -77
  -81
  -86
  -90
  -94
  -100
  -105
  -110
Free cash flow, $m
  -33
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  81
  85
  90
  94
  99
Issuance/(repayment) of debt, $m
  0
  12
  13
  13
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  40
Issuance/(repurchase) of shares, $m
  0
  7
  6
  5
  4
  3
  2
  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
  19
  19
  18
  18
  17
  17
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  40
Total cash flow (excl. dividends), $m
  -32
  36
  37
  39
  40
  41
  42
  44
  46
  49
  51
  51
  54
  58
  61
  64
  68
  72
  76
  80
  84
  89
  93
  98
  103
  109
  114
  120
  126
  133
  140
Retained Cash Flow (-), $m
  -6
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -64
  -67
Prev. year cash balance distribution, $m
 
  103
  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
 
  119
  16
  17
  17
  17
  17
  18
  19
  21
  22
  21
  23
  25
  27
  29
  31
  34
  36
  38
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  72
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
 
  114
  15
  15
  14
  13
  13
  12
  12
  12
  12
  10
  10
  10
  9
  9
  8
  7
  7
  6
  5
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  98.5
  97.3
  96.5
  95.8
  95.4
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2

HealthStream, Inc. (HealthStream) provides workforce, patient experience and provider solutions for healthcare organizations. The Company operates in three segments: HealthStream Workforce Solutions, HealthStream Patient Experience Solutions and HealthStream Provider Solutions. HealthStream's products and services are organized into three segments: Workforce Solutions, Patient Experience Solutions, and Provider Solutions. HealthStream's solutions are provided to a range of customers within the healthcare industry across the continuum of care. Delivered primarily as Software-as-a-Service (SaaS), the Company's solutions focus on challenges facing the healthcare workforce and healthcare organizations, including the need to manage, retain, engage and develop healthcare workforce talent; meet compliance requirements; manage ongoing medical staff credentialing and privileging processes, and deliver patient experiences of care in healthcare organizations.

FINANCIAL RATIOS  of  HealthStream (HSTM)

Valuation Ratios
P/E Ratio 182.3
Price to Sales 3.2
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 30.4
Price to Free Cash Flow 81
Growth Rates
Sales Growth Rate 8.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 10.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 1%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 1.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 1.4%
Return On Equity - 3 Yr. Avg. 3.9%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 57.1%
Gross Margin - 3 Yr. Avg. 57.1%
EBITDA Margin 12.4%
EBITDA Margin - 3 Yr. Avg. 14.5%
Operating Margin 2.7%
Oper. Margin - 3 Yr. Avg. 6.4%
Pre-Tax Margin 2.7%
Pre-Tax Margin - 3 Yr. Avg. 6.4%
Net Profit Margin 1.8%
Net Profit Margin - 3 Yr. Avg. 4%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 36.7%
Payout Ratio 0%

HSTM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSTM stock intrinsic value calculation we used $226 million for the last fiscal year's total revenue generated by HealthStream. The default revenue input number comes from 2016 income statement of HealthStream. 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 HSTM stock valuation model: a) initial revenue growth rate of 10.9% 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 HSTM is calculated based on our internal credit rating of HealthStream, 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 HealthStream.
    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 HSTM stock the variable cost ratio is equal to 93.4%.

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 HSTM 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 HealthStream.

Corporate tax rate of 27% is the nominal tax rate for HealthStream. 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 HSTM 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 HSTM are equal to 41.6%.

Life of production assets of 8.7 years is the average useful life of capital assets used in HealthStream 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 HSTM is equal to -9.3%. 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 - $286 million for HealthStream - 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 31.887 million for HealthStream 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 HealthStream at the current share price and the inputted number of shares is $0.7 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ HealthStream beats Street 3Q forecasts   [Oct-23-17 04:39PM  Associated Press]
▶ HealthStream (HSTM) Jumps: Stock Rises 5%   [Oct-12-17 08:40AM  Zacks]
▶ HealthStream tops Street 2Q forecasts   [Jul-24-17 09:45PM  Associated Press]
▶ HealthStream Announces Management Team Changes   [Jul-11-17 09:25AM  Business Wire]
▶ ETFs with exposure to HealthStream, Inc. : June 27, 2017   [Jun-27-17 03:19PM  Capital Cube]
▶ ETFs with exposure to HealthStream, Inc. : May 26, 2017   [May-26-17 01:11PM  Capital Cube]
▶ ETFs with exposure to HealthStream, Inc. : May 5, 2017   [May-05-17 04:13PM  Capital Cube]
▶ Here's Why HealthStream, Inc. Stock Is Soaring   [Apr-25-17 12:29PM  Motley Fool]
▶ HealthStream tops Street 1Q forecasts   [Apr-24-17 04:36PM  Associated Press]
▶ HealthStream reports 4Q loss   [Feb-21-17 05:20PM  Associated Press]
▶ Is Hibbett Sports, Inc. (HIBB) A Good Stock To Buy?   [Dec-12-16 08:13AM  at Insider Monkey]
▶ HealthStream Acquires Morrisey Associates   [04:30PM  Business Wire]
Financial statements of HSTM
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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