Intrinsic value of InnerWorkings - INWK

Previous Close

$10.44

  Intrinsic Value

$12.02

stock screener

  Rating & Target

hold

+15%

  Value-price divergence*

-84%

Previous close

$10.44

 
Intrinsic value

$12.02

 
Up/down potential

+15%

 
Rating

hold

 
Value-price divergence*

-84%

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

We calculate the intrinsic value of INWK 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 0.6

 

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, %
  6.03
  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
  1,091
  1,113
  1,138
  1,168
  1,201
  1,237
  1,277
  1,320
  1,367
  1,418
  1,473
  1,531
  1,593
  1,659
  1,729
  1,804
  1,883
  1,967
  2,055
  2,149
  2,247
  2,352
  2,461
  2,577
  2,699
  2,828
  2,963
  3,105
  3,255
  3,413
  3,579
Variable operating expenses, $m
 
  519
  531
  544
  559
  575
  593
  612
  633
  656
  681
  686
  714
  744
  775
  809
  844
  882
  922
  963
  1,008
  1,054
  1,104
  1,156
  1,210
  1,268
  1,329
  1,392
  1,460
  1,530
  1,605
Fixed operating expenses, $m
 
  589
  604
  619
  635
  651
  667
  683
  701
  718
  736
  754
  773
  793
  812
  833
  854
  875
  897
  919
  942
  966
  990
  1,015
  1,040
  1,066
  1,093
  1,120
  1,148
  1,177
  1,206
Total operating expenses, $m
  1,071
  1,108
  1,135
  1,163
  1,194
  1,226
  1,260
  1,295
  1,334
  1,374
  1,417
  1,440
  1,487
  1,537
  1,587
  1,642
  1,698
  1,757
  1,819
  1,882
  1,950
  2,020
  2,094
  2,171
  2,250
  2,334
  2,422
  2,512
  2,608
  2,707
  2,811
Operating income, $m
  20
  4
  4
  5
  7
  11
  17
  25
  33
  44
  56
  90
  105
  122
  141
  162
  185
  210
  237
  266
  297
  331
  368
  407
  449
  494
  542
  593
  648
  706
  768
EBITDA, $m
  38
  28
  28
  29
  31
  36
  42
  49
  58
  69
  81
  95
  111
  128
  147
  168
  191
  216
  244
  273
  305
  339
  376
  415
  458
  503
  552
  603
  658
  717
  780
Interest expense (income), $m
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  26
  28
  29
  31
Earnings before tax, $m
  15
  0
  -1
  0
  2
  6
  11
  18
  27
  36
  48
  81
  96
  112
  131
  151
  173
  197
  222
  251
  281
  314
  349
  387
  427
  471
  517
  567
  620
  677
  737
Tax expense, $m
  11
  0
  0
  0
  1
  2
  3
  5
  7
  10
  13
  22
  26
  30
  35
  41
  47
  53
  60
  68
  76
  85
  94
  104
  115
  127
  140
  153
  167
  183
  199
Net income, $m
  4
  0
  -1
  0
  2
  4
  8
  13
  19
  27
  35
  59
  70
  82
  95
  110
  126
  143
  162
  183
  205
  229
  255
  282
  312
  344
  378
  414
  453
  494
  538

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  31
  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
  591
  571
  584
  599
  616
  635
  655
  678
  702
  728
  756
  786
  818
  852
  888
  926
  967
  1,010
  1,055
  1,103
  1,154
  1,207
  1,264
  1,323
  1,386
  1,452
  1,521
  1,594
  1,671
  1,752
  1,837
Adjusted assets (=assets-cash), $m
  560
  571
  584
  599
  616
  635
  655
  678
  702
  728
  756
  786
  818
  852
  888
  926
  967
  1,010
  1,055
  1,103
  1,154
  1,207
  1,264
  1,323
  1,386
  1,452
  1,521
  1,594
  1,671
  1,752
  1,837
Revenue / Adjusted assets
  1.948
  1.949
  1.949
  1.950
  1.950
  1.948
  1.950
  1.947
  1.947
  1.948
  1.948
  1.948
  1.947
  1.947
  1.947
  1.948
  1.947
  1.948
  1.948
  1.948
  1.947
  1.949
  1.947
  1.948
  1.947
  1.948
  1.948
  1.948
  1.948
  1.948
  1.948
Average production assets, $m
  52
  52
  54
  55
  56
  58
  60
  62
  64
  67
  69
  72
  75
  78
  81
  85
  89
  92
  97
  101
  106
  111
  116
  121
  127
  133
  139
  146
  153
  160
  168
Working capital, $m
  116
  87
  89
  91
  94
  96
  100
  103
  107
  111
  115
  119
  124
  129
  135
  141
  147
  153
  160
  168
  175
  183
  192
  201
  211
  221
  231
  242
  254
  266
  279
Total debt, $m
  107
  113
  121
  130
  140
  151
  162
  175
  190
  205
  221
  238
  257
  277
  298
  320
  344
  369
  395
  423
  452
  484
  516
  551
  587
  626
  666
  709
  754
  801
  850
Total liabilities, $m
  326
  332
  340
  349
  359
  370
  381
  394
  409
  424
  440
  457
  476
  496
  517
  539
  563
  588
  614
  642
  671
  703
  735
  770
  806
  845
  885
  928
  973
  1,020
  1,069
Total equity, $m
  265
  239
  244
  251
  258
  265
  274
  283
  293
  304
  316
  328
  342
  356
  371
  387
  404
  422
  441
  461
  482
  505
  528
  553
  579
  607
  636
  666
  699
  732
  768
Total liabilities and equity, $m
  591
  571
  584
  600
  617
  635
  655
  677
  702
  728
  756
  785
  818
  852
  888
  926
  967
  1,010
  1,055
  1,103
  1,153
  1,208
  1,263
  1,323
  1,385
  1,452
  1,521
  1,594
  1,672
  1,752
  1,837
Debt-to-equity ratio
  0.404
  0.480
  0.500
  0.520
  0.540
  0.570
  0.590
  0.620
  0.650
  0.670
  0.700
  0.730
  0.750
  0.780
  0.800
  0.830
  0.850
  0.870
  0.900
  0.920
  0.940
  0.960
  0.980
  1.000
  1.010
  1.030
  1.050
  1.060
  1.080
  1.090
  1.110
Adjusted equity ratio
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  0
  -1
  0
  2
  4
  8
  13
  19
  27
  35
  59
  70
  82
  95
  110
  126
  143
  162
  183
  205
  229
  255
  282
  312
  344
  378
  414
  453
  494
  538
Depreciation, amort., depletion, $m
  18
  24
  24
  24
  24
  24
  25
  25
  25
  25
  25
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
Funds from operations, $m
  -19
  24
  23
  24
  26
  29
  33
  38
  44
  52
  60
  64
  75
  88
  101
  116
  132
  150
  169
  190
  213
  237
  263
  291
  321
  353
  387
  424
  463
  505
  550
Change in working capital, $m
  -30
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Cash from operations, $m
  11
  22
  21
  22
  23
  26
  30
  35
  41
  48
  56
  60
  71
  82
  96
  110
  126
  143
  162
  183
  205
  229
  254
  282
  311
  343
  377
  413
  452
  493
  537
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
New CAPEX, $m
  -13
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
Cash from investing activities, $m
  -13
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -8
  -8
  -8
  -8
  -8
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -15
  -15
  -15
  -17
  -17
  -18
  -19
Free cash flow, $m
  -2
  18
  16
  17
  18
  20
  24
  28
  34
  41
  49
  52
  63
  74
  87
  101
  116
  133
  152
  172
  193
  216
  241
  268
  297
  328
  361
  397
  434
  475
  518
Issuance/(repayment) of debt, $m
  9
  6
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  35
  36
  38
  40
  43
  45
  47
  50
Issuance/(repurchase) of shares, $m
  3
  5
  6
  6
  5
  3
  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  
  4
  11
  14
  15
  15
  14
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  35
  36
  38
  40
  43
  45
  47
  50
Total cash flow (excl. dividends), $m
  0
  29
  30
  32
  33
  35
  36
  41
  48
  56
  65
  70
  81
  94
  108
  123
  140
  158
  178
  199
  223
  247
  274
  303
  334
  366
  402
  439
  479
  522
  567
Retained Cash Flow (-), $m
  -11
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
Prev. year cash balance distribution, $m
 
  31
  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
 
  55
  24
  25
  26
  27
  27
  32
  38
  45
  53
  57
  68
  80
  93
  107
  123
  140
  159
  179
  201
  225
  251
  278
  307
  339
  373
  409
  447
  488
  532
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
 
  53
  22
  22
  21
  21
  20
  21
  23
  26
  28
  27
  28
  30
  30
  31
  30
  30
  28
  27
  24
  22
  20
  17
  15
  12
  10
  8
  6
  5
  4
Current shareholders' claim on cash, %
  100
  99.0
  97.8
  96.6
  95.6
  95.0
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9

InnerWorkings, Inc. provides marketing execution solutions in North America, Latin America, Europe, the Middle East, and Africa. The company’s proprietary software applications and databases create an integrated solution that stores, analyzes, and tracks the production capabilities of the supplier network, as well as detailed pricing data. It offers outsourced print management solutions that encompass the design, sourcing, and delivery of printed marketing materials, including direct mail, in-store signage, and marketing collateral; and outsourced solutions for the design, sourcing, and delivery of branded merchandise and product packaging. The company also assists clients with the management of events, promotions spending, and related procurement needs; and designs, sources, and installs point of sale displays, permanent retail fixtures, and overall store design, as well as offers on-site outsourced creative studio services and on-demand creative services. In addition, it provides fulfillment and logistics services, such as kitting and assembly, inventory management, and pre-sorting postage. Further, the company offers creative services comprising copywriting, graphics and Website design, identity work and marketing collateral development, and image and print-ready page processing and proofing capability services. It serves corporate clients in a range of industries, such as retail, financial services, hospitality, consumer packaged goods, non-profits, healthcare, food and beverage, broadcasting and cable, and transportation. The company was founded in 2001 and is headquartered in Chicago, Illinois.

FINANCIAL RATIOS  of  InnerWorkings (INWK)

Valuation Ratios
P/E Ratio 141.2
Price to Sales 0.5
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 51.3
Price to Free Cash Flow -282.3
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.3%
Cap. Spend. - 3 Yr. Gr. Rate 1.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 40.4%
Total Debt to Equity 40.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 0.8%
Ret/ On Assets - 3 Yr. Avg. 1.4%
Return On Total Capital 1.1%
Ret/ On T. Cap. - 3 Yr. Avg. 1.6%
Return On Equity 1.5%
Return On Equity - 3 Yr. Avg. 1.9%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 24.2%
Gross Margin - 3 Yr. Avg. 23.5%
EBITDA Margin 3.4%
EBITDA Margin - 3 Yr. Avg. 3.4%
Operating Margin 1.8%
Oper. Margin - 3 Yr. Avg. 1.9%
Pre-Tax Margin 1.4%
Pre-Tax Margin - 3 Yr. Avg. 1.3%
Net Profit Margin 0.4%
Net Profit Margin - 3 Yr. Avg. 0.5%
Effective Tax Rate 73.3%
Eff/ Tax Rate - 3 Yr. Avg. 6.8%
Payout Ratio 0%

INWK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the INWK stock intrinsic value calculation we used $1091 million for the last fiscal year's total revenue generated by InnerWorkings. The default revenue input number comes from 2016 income statement of InnerWorkings. 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 INWK 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 4.4%, whose default value for INWK is calculated based on our internal credit rating of InnerWorkings, 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 InnerWorkings.
    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 INWK stock the variable cost ratio is equal to 46.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $575 million in the base year in the intrinsic value calculation for INWK 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 3.9% for InnerWorkings.

Corporate tax rate of 27% is the nominal tax rate for InnerWorkings. 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 INWK 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 INWK are equal to 4.7%.

Life of production assets of 14.2 years is the average useful life of capital assets used in InnerWorkings 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 INWK is equal to 7.8%. 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 - $265 million for InnerWorkings - 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 53.004 million for InnerWorkings 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 InnerWorkings at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ InnerWorkings beats 2Q profit forecasts   [Aug-07-17 11:14PM  Associated Press]
▶ InnerWorkings beats 2Q profit forecasts   [06:10PM  Associated Press]
▶ InnerWorkings to Present at Upcoming Investor Conferences   [May-31-17 04:30PM  Business Wire]
▶ ETFs with exposure to InnerWorkings, Inc. : May 12, 2017   [May-12-17 04:03PM  Capital Cube]
▶ InnerWorkings meets 1Q profit forecasts   [May-08-17 05:50PM  Associated Press]
▶ InnerWorkings tops Street 4Q forecasts   [07:37PM  Associated Press]
▶ InnerWorkings Expands Partnership with McKesson   [Dec-21-16 09:13AM  Business Wire]
▶ Is Strayer Education Inc (STRA) Going to Burn These Hedge Funds?   [Dec-12-16 09:26AM  at Insider Monkey]
Stock chart of INWK Financial statements of INWK
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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