Intrinsic value of Kingstone - KINS

Previous Close

$15.00

  Intrinsic Value

$45.02

stock screener

  Rating & Target

str. buy

+200%

  Value-price divergence*

-102%

Previous close

$15.00

 
Intrinsic value

$45.02

 
Up/down potential

+200%

 
Rating

str. buy

 
Value-price divergence*

-102%

Our model is not good at valuating stocks of financial companies, such as KINS.

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

We calculate the intrinsic value of KINS 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 0.2

 

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, %
  20.31
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  0
  90
  104
  119
  135
  152
  170
  189
  209
  230
  252
  275
  299
  324
  350
  376
  404
  433
  463
  495
  527
  561
  596
  633
  671
  711
  753
  796
  841
  888
  938
Variable operating expenses, $m
 
  69
  80
  91
  103
  116
  130
  145
  160
  176
  193
  211
  229
  248
  268
  288
  310
  332
  355
  379
  404
  430
  457
  485
  514
  545
  577
  610
  644
  681
  718
Fixed operating expenses, $m
 
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  10
Total operating expenses, $m
  64
  74
  85
  96
  109
  122
  136
  151
  166
  182
  199
  218
  236
  255
  275
  295
  317
  340
  363
  387
  412
  438
  466
  494
  523
  554
  587
  620
  654
  691
  728
Operating income, $m
  13
  16
  19
  22
  26
  30
  34
  38
  43
  48
  53
  58
  63
  69
  75
  81
  87
  94
  101
  108
  115
  123
  131
  139
  148
  157
  167
  177
  187
  198
  209
EBITDA, $m
  14
  16
  20
  23
  27
  31
  35
  39
  44
  49
  54
  59
  65
  71
  77
  83
  90
  96
  103
  111
  118
  126
  134
  143
  152
  161
  171
  181
  192
  203
  214
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  4
  5
  6
  7
  8
  9
  10
  11
  13
  14
  15
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  37
  39
  41
Earnings before tax, $m
  13
  16
  18
  21
  24
  27
  30
  34
  37
  41
  45
  49
  53
  58
  62
  67
  72
  77
  83
  88
  94
  100
  106
  113
  120
  127
  134
  142
  150
  159
  168
Tax expense, $m
  4
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  41
  43
  45
Net income, $m
  9
  12
  13
  15
  17
  20
  22
  25
  27
  30
  33
  36
  39
  42
  45
  49
  53
  56
  60
  64
  69
  73
  78
  82
  87
  93
  98
  104
  110
  116
  122

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  169
  197
  228
  261
  296
  333
  373
  415
  459
  505
  553
  603
  656
  710
  767
  826
  887
  950
  1,016
  1,085
  1,156
  1,231
  1,308
  1,388
  1,472
  1,560
  1,651
  1,746
  1,845
  1,948
  2,057
Adjusted assets (=assets-cash), $m
  169
  197
  228
  261
  296
  333
  373
  415
  459
  505
  553
  603
  656
  710
  767
  826
  887
  950
  1,016
  1,085
  1,156
  1,231
  1,308
  1,388
  1,472
  1,560
  1,651
  1,746
  1,845
  1,948
  2,057
Revenue / Adjusted assets
  0.000
  0.457
  0.456
  0.456
  0.456
  0.456
  0.456
  0.455
  0.455
  0.455
  0.456
  0.456
  0.456
  0.456
  0.456
  0.455
  0.455
  0.456
  0.456
  0.456
  0.456
  0.456
  0.456
  0.456
  0.456
  0.456
  0.456
  0.456
  0.456
  0.456
  0.456
Average production assets, $m
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  54
Working capital, $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
Total debt, $m
  0
  19
  39
  61
  84
  109
  135
  163
  192
  223
  255
  288
  323
  359
  396
  435
  476
  518
  562
  607
  655
  704
  755
  809
  864
  922
  982
  1,045
  1,111
  1,180
  1,252
Total liabilities, $m
  113
  131
  151
  173
  196
  221
  247
  275
  304
  335
  367
  400
  435
  471
  508
  547
  588
  630
  674
  719
  767
  816
  867
  921
  976
  1,034
  1,094
  1,157
  1,223
  1,292
  1,364
Total equity, $m
  57
  66
  77
  88
  100
  112
  126
  140
  155
  170
  186
  203
  221
  239
  258
  278
  299
  320
  343
  366
  390
  415
  441
  468
  496
  526
  556
  588
  622
  657
  693
Total liabilities and equity, $m
  170
  197
  228
  261
  296
  333
  373
  415
  459
  505
  553
  603
  656
  710
  766
  825
  887
  950
  1,017
  1,085
  1,157
  1,231
  1,308
  1,389
  1,472
  1,560
  1,650
  1,745
  1,845
  1,949
  2,057
Debt-to-equity ratio
  0.000
  0.280
  0.510
  0.690
  0.840
  0.970
  1.080
  1.170
  1.240
  1.310
  1.370
  1.420
  1.460
  1.500
  1.530
  1.560
  1.590
  1.620
  1.640
  1.660
  1.680
  1.700
  1.710
  1.730
  1.740
  1.750
  1.770
  1.780
  1.790
  1.800
  1.810
Adjusted equity ratio
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  9
  12
  13
  15
  17
  20
  22
  25
  27
  30
  33
  36
  39
  42
  45
  49
  53
  56
  60
  64
  69
  73
  78
  82
  87
  93
  98
  104
  110
  116
  122
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
Funds from operations, $m
  20
  12
  14
  16
  18
  21
  23
  26
  28
  31
  34
  37
  41
  44
  47
  51
  55
  59
  63
  67
  72
  76
  81
  86
  91
  97
  102
  108
  115
  121
  128
Change in working capital, $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 operations, $m
  15
  12
  14
  16
  18
  21
  23
  26
  28
  31
  34
  37
  41
  44
  47
  51
  55
  59
  63
  67
  72
  76
  81
  86
  91
  97
  102
  108
  115
  121
  128
Maintenance CAPEX, $m
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
New CAPEX, $m
  -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
  -2
  -2
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  -20
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -8
  -8
  -8
Free cash flow, $m
  -5
  11
  13
  15
  17
  19
  21
  24
  26
  29
  32
  35
  38
  41
  44
  47
  51
  55
  59
  63
  67
  71
  76
  81
  85
  91
  96
  102
  107
  113
  120
Issuance/(repayment) of debt, $m
  0
  19
  20
  22
  23
  25
  26
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  47
  49
  51
  53
  56
  58
  60
  63
  66
  69
  72
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
  19
  20
  22
  23
  25
  26
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  47
  49
  51
  53
  56
  58
  60
  63
  66
  69
  72
Total cash flow (excl. dividends), $m
  0
  30
  33
  36
  40
  44
  47
  51
  55
  59
  63
  68
  72
  77
  82
  87
  92
  97
  102
  108
  114
  120
  127
  134
  141
  148
  156
  165
  173
  182
  192
Retained Cash Flow (-), $m
  -12
  -9
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
Prev. year cash balance distribution, $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 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
 
  20
  23
  25
  28
  31
  34
  37
  40
  44
  47
  51
  55
  58
  63
  67
  71
  76
  80
  85
  90
  95
  101
  107
  113
  119
  126
  132
  140
  147
  155
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
 
  19
  21
  22
  23
  24
  25
  25
  25
  25
  25
  24
  23
  22
  21
  20
  18
  16
  15
  13
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
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Kingstone Companies, Inc., through its subsidiary, Kingstone Insurance Company, underwrites property and casualty insurance products to small businesses and individuals in New York. The company provides personal lines insurance products, such as homeowners, dwelling fire, 3-4 family dwelling package, condominium, renters, equipment breakdown, service line endorsements, and personal umbrella policies; and commercial liability policies comprising small business retail, service, and office risks without residential exposure to business owners. It also offers for-hire vehicle physical damage only policies for livery and car service vehicles and taxicabs; and canine legal liability policies, as well as reinsurance products. In addition, the company, through its subsidiary, Payments, Inc., places contracts with a third party licensed premium finance company. Kingstone Companies, Inc. sells its products through independent retail and wholesale agents and brokers. The company was formerly known as DCAP Group, Inc. and changed its name to Kingstone Companies, Inc. in July 2009. Kingstone Companies, Inc. was founded in 1886 and is based in Kingston, New York.

FINANCIAL RATIOS  of  Kingstone (KINS)

Valuation Ratios
P/E Ratio 13.2
Price to Sales 1.5
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 7.9
Price to Free Cash Flow 8.5
Growth Rates
Sales Growth Rate 20.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital 17.6%
Ret/ On T. Cap. - 3 Yr. Avg. 15.6%
Return On Equity 17.6%
Return On Equity - 3 Yr. Avg. 15.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 18.2%
EBITDA Margin - 3 Yr. Avg. 17.8%
Operating Margin 16.9%
Oper. Margin - 3 Yr. Avg. 16.2%
Pre-Tax Margin 16.9%
Pre-Tax Margin - 3 Yr. Avg. 16.2%
Net Profit Margin 11.7%
Net Profit Margin - 3 Yr. Avg. 10.9%
Effective Tax Rate 30.8%
Eff/ Tax Rate - 3 Yr. Avg. 32.8%
Payout Ratio 22.2%

KINS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KINS stock intrinsic value calculation we used $77 million for the last fiscal year's total revenue generated by Kingstone. The default revenue input number comes from 2016 income statement of Kingstone. 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 KINS stock valuation model: a) initial revenue growth rate of 16.7% 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 KINS is calculated based on our internal credit rating of Kingstone, 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 Kingstone.
    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 KINS stock the variable cost ratio is equal to 76.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5 million in the base year in the intrinsic value calculation for KINS 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 Kingstone.

Corporate tax rate of 27% is the nominal tax rate for Kingstone. 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 KINS 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 KINS are equal to 5.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Kingstone 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 KINS is equal to 0%. 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 - $57 million for Kingstone - 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 10.394 million for Kingstone 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 Kingstone at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Which Companies Are Now Outperforming 95% Of All Stocks?   [Jun-19-17 05:05PM  Investor's Business Daily]
▶ Thinly Traded Insurance Stock With 114% Growth Nears Buy Point   [04:15PM  Investor's Business Daily]
▶ Kingstone Announces 2017 First Quarter Financial Results   [May-11-17 04:15PM  Business Wire]
▶ 8 Rising Stocks That Are Still Undervalued   [Feb-20-17 03:05PM  GuruFocus.com]
▶ Kingstone Declares $0.0625 Per Share Quarterly Dividend   [Feb-07-17 04:15PM  Business Wire]
▶ Kingstone Companies Closes Public Offering   [Jan-31-17 01:00PM  Business Wire]
▶ Kingstone Companies, Inc. Prices Common Stock Offering   [Jan-26-17 09:00AM  Business Wire]
▶ Kingstone Companies, Inc. Launches Common Stock Offering   [Jan-24-17 06:30PM  Business Wire]
▶ Kingstone Announces 2016 Second Quarter Financial Results   [Aug-11-16 04:47PM  Business Wire]
Stock chart of KINS Financial statements of KINS
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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