Intrinsic value of Insteel Industries - IIIN

Previous Close

$29.16

  Intrinsic Value

$14.81

stock screener

  Rating & Target

sell

-49%

  Value-price divergence*

+19%

Previous close

$29.16

 
Intrinsic value

$14.81

 
Up/down potential

-49%

 
Rating

sell

 
Value-price divergence*

+19%

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

We calculate the intrinsic value of IIIN 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, %
  -6.47
  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
  419
  427
  437
  448
  461
  475
  490
  507
  525
  545
  566
  588
  612
  637
  664
  693
  723
  755
  789
  825
  863
  903
  945
  990
  1,037
  1,086
  1,138
  1,193
  1,250
  1,311
  1,374
Variable operating expenses, $m
 
  395
  404
  414
  426
  439
  453
  468
  485
  503
  522
  542
  564
  588
  613
  639
  667
  697
  728
  761
  796
  833
  872
  913
  956
  1,002
  1,050
  1,100
  1,153
  1,209
  1,268
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
  362
  395
  404
  414
  426
  439
  453
  468
  485
  503
  522
  542
  564
  588
  613
  639
  667
  697
  728
  761
  796
  833
  872
  913
  956
  1,002
  1,050
  1,100
  1,153
  1,209
  1,268
Operating income, $m
  56
  32
  33
  34
  35
  36
  37
  39
  40
  42
  43
  46
  48
  49
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  81
  84
  88
  93
  97
  102
  107
EBITDA, $m
  68
  45
  46
  47
  48
  50
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  79
  82
  86
  90
  94
  99
  103
  108
  113
  119
  124
  130
  137
  143
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
Earnings before tax, $m
  56
  32
  33
  34
  35
  36
  37
  38
  40
  41
  43
  45
  47
  48
  50
  52
  55
  57
  59
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  97
  102
Tax expense, $m
  19
  9
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
Net income, $m
  37
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  52
  54
  56
  59
  62
  65
  68
  71
  74

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  59
  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
  293
  239
  244
  250
  257
  265
  274
  283
  293
  304
  316
  328
  342
  356
  371
  387
  404
  422
  441
  461
  482
  504
  528
  553
  579
  606
  635
  666
  698
  732
  767
Adjusted assets (=assets-cash), $m
  234
  239
  244
  250
  257
  265
  274
  283
  293
  304
  316
  328
  342
  356
  371
  387
  404
  422
  441
  461
  482
  504
  528
  553
  579
  606
  635
  666
  698
  732
  767
Revenue / Adjusted assets
  1.791
  1.787
  1.791
  1.792
  1.794
  1.792
  1.788
  1.792
  1.792
  1.793
  1.791
  1.793
  1.789
  1.789
  1.790
  1.791
  1.790
  1.789
  1.789
  1.790
  1.790
  1.792
  1.790
  1.790
  1.791
  1.792
  1.792
  1.791
  1.791
  1.791
  1.791
Average production assets, $m
  96
  98
  100
  103
  106
  109
  112
  116
  120
  125
  130
  135
  140
  146
  152
  159
  166
  173
  181
  189
  198
  207
  216
  227
  237
  249
  261
  273
  286
  300
  315
Working capital, $m
  126
  68
  70
  72
  74
  76
  78
  81
  84
  87
  90
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  145
  151
  158
  166
  174
  182
  191
  200
  210
  220
Total debt, $m
  0
  1
  3
  5
  7
  9
  12
  14
  17
  20
  24
  28
  31
  36
  40
  45
  49
  55
  60
  66
  72
  79
  86
  93
  100
  108
  117
  126
  135
  145
  155
Total liabilities, $m
  68
  69
  71
  73
  75
  77
  80
  82
  85
  88
  92
  96
  99
  104
  108
  113
  117
  123
  128
  134
  140
  147
  154
  161
  168
  176
  185
  194
  203
  213
  223
Total equity, $m
  225
  169
  173
  178
  183
  188
  194
  201
  208
  216
  224
  233
  242
  252
  263
  274
  286
  299
  312
  327
  342
  358
  374
  392
  410
  430
  450
  472
  495
  519
  544
Total liabilities and equity, $m
  293
  238
  244
  251
  258
  265
  274
  283
  293
  304
  316
  329
  341
  356
  371
  387
  403
  422
  440
  461
  482
  505
  528
  553
  578
  606
  635
  666
  698
  732
  767
Debt-to-equity ratio
  0.000
  0.010
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.240
  0.250
  0.260
  0.270
  0.270
  0.280
  0.290
Adjusted equity ratio
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  37
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  52
  54
  56
  59
  62
  65
  68
  71
  74
Depreciation, amort., depletion, $m
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
Funds from operations, $m
  60
  36
  37
  37
  38
  40
  41
  42
  44
  45
  47
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  73
  77
  80
  84
  88
  92
  96
  101
  106
  111
Change in working capital, $m
  5
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
Cash from operations, $m
  55
  34
  35
  36
  36
  37
  38
  39
  41
  42
  43
  45
  46
  48
  50
  52
  54
  57
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  96
  101
Maintenance CAPEX, $m
  0
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
New CAPEX, $m
  -13
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
Cash from investing activities, $m
  -13
  -13
  -13
  -15
  -15
  -15
  -17
  -17
  -18
  -18
  -20
  -20
  -21
  -22
  -23
  -25
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
Free cash flow, $m
  42
  21
  21
  21
  22
  22
  22
  23
  23
  24
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
Issuance/(repayment) of debt, $m
  0
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  5
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
Total cash flow (excl. dividends), $m
  47
  23
  23
  23
  24
  24
  25
  25
  26
  27
  28
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  61
Retained Cash Flow (-), $m
  -25
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
Prev. year cash balance distribution, $m
 
  59
  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
 
  79
  19
  19
  19
  19
  19
  19
  19
  19
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  25
  26
  26
  27
  28
  30
  31
  32
  33
  35
  36
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
 
  75
  17
  16
  15
  14
  14
  13
  12
  11
  10
  9
  8
  8
  7
  6
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
  1
  0
  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
  100.0
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Insteel Industries, Inc. is a manufacturer of steel wire reinforcing products for concrete construction applications. The Company's operations are focused on the manufacture and marketing of steel wire reinforcing products for concrete construction applications. Its concrete reinforcing products consist of two product lines: prestressed concrete strand (PC strand) and welded wire reinforcement (WWR). PC strand is a seven-wire strand that is used to impart compression forces into precast concrete elements and structures, providing reinforcement for bridges, parking decks, buildings and other concrete structures. WWR is produced as an engineered reinforcing product for use in nonresidential and residential construction. Its products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. The Company sells its products nationwide across the United States, Canada, Mexico, and Central and South America.

FINANCIAL RATIOS  of  Insteel Industries (IIIN)

Valuation Ratios
P/E Ratio 15
Price to Sales 1.3
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 10.1
Price to Free Cash Flow 13.2
Growth Rates
Sales Growth Rate -6.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 44.4%
Cap. Spend. - 3 Yr. Gr. Rate 13.2%
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 13.4%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 17.4%
Ret/ On T. Cap. - 3 Yr. Avg. 13%
Return On Equity 17.4%
Return On Equity - 3 Yr. Avg. 13%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 20.3%
Gross Margin - 3 Yr. Avg. 15.1%
EBITDA Margin 16.2%
EBITDA Margin - 3 Yr. Avg. 11.6%
Operating Margin 13.6%
Oper. Margin - 3 Yr. Avg. 9%
Pre-Tax Margin 13.4%
Pre-Tax Margin - 3 Yr. Avg. 8.9%
Net Profit Margin 8.8%
Net Profit Margin - 3 Yr. Avg. 6%
Effective Tax Rate 33.9%
Eff/ Tax Rate - 3 Yr. Avg. 33.1%
Payout Ratio 56.8%

IIIN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IIIN stock intrinsic value calculation we used $419 million for the last fiscal year's total revenue generated by Insteel Industries. The default revenue input number comes from 2016 income statement of Insteel Industries. 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 IIIN 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 IIIN is calculated based on our internal credit rating of Insteel Industries, 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 Insteel Industries.
    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 IIIN stock the variable cost ratio is equal to 92.4%.

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 IIIN 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 Insteel Industries.

Corporate tax rate of 27% is the nominal tax rate for Insteel Industries. 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 IIIN 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 IIIN are equal to 22.9%.

Life of production assets of 8.6 years is the average useful life of capital assets used in Insteel Industries 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 IIIN is equal to 16%. 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 - $225 million for Insteel Industries - 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 18.272 million for Insteel Industries 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 Insteel Industries at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Insteel Industries posts 4Q profit   [07:02AM  Associated Press]
▶ Is It The Right Time To Buy Insteel Industries Inc (IIIN)?   [Oct-18-17 09:51AM  Simply Wall St.]
▶ Should You Buy Insteel Industries Inc (IIIN)?   [Sep-28-17 08:45PM  Simply Wall St.]
▶ Insteel Industries Declares Quarterly Cash Dividend   [Aug-15-17 02:00PM  PR Newswire]
▶ Insteel Industries posts 3Q profit   [12:21AM  Associated Press]
▶ Insteel Industries Declares Quarterly Cash Dividend   [May-09-17 02:00PM  PR Newswire]
▶ Insteel Industries posts 2Q profit   [Apr-20-17 06:38AM  Associated Press]
▶ Why CEOs Aren't as Bullish as Wall Street Over Earnings   [Jan-26-17 06:00AM  Investopedia]
▶ Bruce Pile's Top Recommendations For 2017   [Dec-27-16 06:06PM  at Forbes]
▶ What Happened in the Stock Market Today   [Nov-26-16 02:02PM  at Motley Fool]
▶ Why Insteel Industries Inc. Stock Jumped 13% Today   [Nov-25-16 11:22AM  at Motley Fool]
▶ Insteel Industries Traded Ex-Dividend (IIIN)   [Sep-15-16 09:13AM  at Investopedia]
▶ Martin Zweig: Shotgun Stock Hunter   [09:30AM  at Forbes]
Financial statements of IIIN
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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