Intrinsic value of Insteel Industries - IIIN

Previous Close

$27.63

  Intrinsic Value

$19.79

stock screener

  Rating & Target

sell

-28%

Previous close

$27.63

 
Intrinsic value

$19.79

 
Up/down potential

-28%

 
Rating

sell

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 2017), $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
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -7.16
  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
  389
  397
  406
  416
  428
  441
  455
  471
  488
  506
  525
  546
  568
  592
  617
  643
  671
  701
  733
  766
  801
  838
  878
  919
  962
  1,008
  1,056
  1,107
  1,161
  1,217
  1,276
Variable operating expenses, $m
 
  93
  95
  97
  100
  103
  106
  110
  114
  118
  123
  127
  132
  137
  143
  149
  156
  163
  170
  178
  186
  195
  204
  213
  223
  234
  245
  257
  270
  283
  296
Fixed operating expenses, $m
 
  278
  285
  292
  299
  307
  314
  322
  330
  338
  347
  356
  364
  374
  383
  392
  402
  412
  423
  433
  444
  455
  467
  478
  490
  502
  515
  528
  541
  555
  568
Total operating expenses, $m
  355
  371
  380
  389
  399
  410
  420
  432
  444
  456
  470
  483
  496
  511
  526
  541
  558
  575
  593
  611
  630
  650
  671
  691
  713
  736
  760
  785
  811
  838
  864
Operating income, $m
  34
  26
  26
  27
  29
  31
  35
  39
  43
  49
  56
  63
  72
  81
  91
  101
  113
  126
  140
  155
  171
  189
  207
  227
  249
  272
  296
  322
  350
  380
  411
EBITDA, $m
  46
  38
  38
  39
  41
  44
  48
  52
  57
  63
  70
  78
  87
  97
  107
  119
  131
  145
  160
  176
  193
  211
  231
  252
  275
  299
  325
  352
  381
  413
  446
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
Earnings before tax, $m
  34
  26
  26
  27
  29
  31
  34
  38
  43
  49
  55
  63
  71
  80
  89
  100
  112
  125
  138
  153
  169
  186
  205
  225
  246
  269
  293
  319
  346
  376
  407
Tax expense, $m
  11
  7
  7
  7
  8
  8
  9
  10
  12
  13
  15
  17
  19
  22
  24
  27
  30
  34
  37
  41
  46
  50
  55
  61
  66
  73
  79
  86
  93
  101
  110
Net income, $m
  23
  19
  19
  20
  21
  23
  25
  28
  31
  35
  40
  46
  52
  58
  65
  73
  82
  91
  101
  112
  123
  136
  150
  164
  180
  196
  214
  233
  253
  274
  297

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  32
  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
  283
  256
  262
  269
  276
  285
  294
  304
  315
  326
  339
  352
  366
  382
  398
  415
  433
  452
  473
  494
  517
  541
  566
  593
  621
  650
  682
  714
  749
  785
  823
Adjusted assets (=assets-cash), $m
  251
  256
  262
  269
  276
  285
  294
  304
  315
  326
  339
  352
  366
  382
  398
  415
  433
  452
  473
  494
  517
  541
  566
  593
  621
  650
  682
  714
  749
  785
  823
Revenue / Adjusted assets
  1.550
  1.551
  1.550
  1.546
  1.551
  1.547
  1.548
  1.549
  1.549
  1.552
  1.549
  1.551
  1.552
  1.550
  1.550
  1.549
  1.550
  1.551
  1.550
  1.551
  1.549
  1.549
  1.551
  1.550
  1.549
  1.551
  1.548
  1.550
  1.550
  1.550
  1.550
Average production assets, $m
  53
  54
  55
  56
  58
  60
  61
  64
  66
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  103
  108
  113
  118
  124
  130
  136
  143
  149
  157
  164
  172
Working capital, $m
  118
  88
  90
  92
  95
  97
  101
  104
  108
  112
  116
  121
  126
  131
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  233
  245
  257
  269
  282
Total debt, $m
  0
  1
  3
  4
  6
  8
  10
  13
  15
  18
  21
  24
  28
  31
  35
  39
  44
  48
  53
  58
  64
  69
  75
  82
  88
  95
  103
  111
  119
  128
  137
Total liabilities, $m
  60
  61
  63
  64
  66
  68
  70
  73
  75
  78
  81
  84
  88
  91
  95
  99
  104
  108
  113
  118
  124
  129
  135
  142
  148
  155
  163
  171
  179
  188
  197
Total equity, $m
  223
  195
  199
  204
  210
  217
  224
  231
  239
  248
  258
  268
  279
  290
  303
  316
  330
  344
  360
  376
  393
  412
  431
  451
  473
  495
  519
  544
  570
  597
  626
Total liabilities and equity, $m
  283
  256
  262
  268
  276
  285
  294
  304
  314
  326
  339
  352
  367
  381
  398
  415
  434
  452
  473
  494
  517
  541
  566
  593
  621
  650
  682
  715
  749
  785
  823
Debt-to-equity ratio
  0.000
  0.010
  0.010
  0.020
  0.030
  0.040
  0.050
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.120
  0.130
  0.140
  0.150
  0.150
  0.160
  0.170
  0.170
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
Adjusted equity ratio
  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
  0.761

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  23
  19
  19
  20
  21
  23
  25
  28
  31
  35
  40
  46
  52
  58
  65
  73
  82
  91
  101
  112
  123
  136
  150
  164
  180
  196
  214
  233
  253
  274
  297
Depreciation, amort., depletion, $m
  12
  11
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
Funds from operations, $m
  3
  31
  31
  32
  33
  35
  38
  41
  45
  50
  55
  61
  67
  74
  82
  90
  100
  110
  121
  132
  145
  159
  173
  189
  206
  223
  242
  263
  284
  307
  331
Change in working capital, $m
  -17
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Cash from operations, $m
  20
  29
  29
  29
  31
  32
  35
  38
  42
  46
  51
  56
  62
  69
  76
  85
  94
  103
  114
  125
  137
  150
  165
  180
  196
  213
  232
  251
  272
  295
  318
Maintenance CAPEX, $m
  0
  -11
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
New CAPEX, $m
  -21
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
Cash from investing activities, $m
  -21
  -12
  -12
  -12
  -13
  -14
  -14
  -14
  -15
  -15
  -17
  -17
  -18
  -18
  -19
  -21
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -36
  -37
  -39
  -41
Free cash flow, $m
  -1
  17
  17
  17
  18
  19
  21
  24
  27
  30
  34
  39
  44
  50
  57
  64
  72
  81
  91
  101
  112
  124
  137
  150
  165
  181
  198
  216
  235
  256
  278
Issuance/(repayment) of debt, $m
  0
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
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
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
Total cash flow (excl. dividends), $m
  -1
  18
  18
  19
  20
  21
  23
  26
  29
  33
  37
  42
  48
  54
  61
  68
  77
  86
  95
  106
  117
  130
  143
  157
  172
  188
  205
  224
  243
  264
  287
Retained Cash Flow (-), $m
  2
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
Prev. year cash balance distribution, $m
 
  32
  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
 
  47
  14
  13
  14
  15
  16
  18
  21
  24
  28
  32
  37
  42
  49
  55
  63
  71
  80
  90
  100
  111
  123
  137
  151
  166
  182
  199
  217
  237
  258
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
 
  45
  13
  12
  11
  11
  12
  12
  13
  14
  15
  15
  16
  16
  16
  16
  16
  15
  15
  14
  13
  12
  10
  9
  8
  6
  5
  4
  3
  3
  2
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
  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 22.8
Price to Sales 1.4
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 26.3
Price to Free Cash Flow -525.5
Growth Rates
Sales Growth Rate -7.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 61.5%
Cap. Spend. - 3 Yr. Gr. Rate 18.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. 10%
Return On Total Capital 10.3%
Ret/ On T. Cap. - 3 Yr. Avg. 13.1%
Return On Equity 10.3%
Return On Equity - 3 Yr. Avg. 13.1%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 15.4%
Gross Margin - 3 Yr. Avg. 16.2%
EBITDA Margin 11.8%
EBITDA Margin - 3 Yr. Avg. 12.7%
Operating Margin 8.7%
Oper. Margin - 3 Yr. Avg. 10%
Pre-Tax Margin 8.7%
Pre-Tax Margin - 3 Yr. Avg. 9.8%
Net Profit Margin 5.9%
Net Profit Margin - 3 Yr. Avg. 6.6%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 33.2%
Payout Ratio 113%

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 $389 million for the last fiscal year's total revenue generated by Insteel Industries. The default revenue input number comes from 2017 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 23.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $271 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 13.5%.

Life of production assets of 5 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 22.1%. 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 - $223 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 19.025 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

▶ NasdaqGS Top Dividend Paying Stocks   [Dec-09-17 08:02AM  Simply Wall St.]
▶ Insteel Industries Declares Quarterly Cash Dividend   [Nov-07-17 02:00PM  PR Newswire]
▶ Insteel Industries posts 4Q profit   [Oct-19-17 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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