Intrinsic value of Natural Health Trends - NHTC

Previous Close

$19.20

  Intrinsic Value

$35.48

stock screener

  Rating & Target

str. buy

+85%

Previous close

$19.20

 
Intrinsic value

$35.48

 
Up/down potential

+85%

 
Rating

str. buy

We calculate the intrinsic value of NHTC 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, %
  8.68
  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
  288
  294
  301
  308
  317
  327
  337
  349
  361
  374
  389
  404
  420
  438
  457
  476
  497
  519
  543
  567
  593
  621
  650
  680
  713
  746
  782
  820
  859
  901
  945
Variable operating expenses, $m
 
  90
  92
  94
  97
  100
  103
  107
  110
  114
  119
  123
  128
  134
  139
  145
  152
  159
  166
  173
  181
  190
  198
  208
  218
  228
  239
  250
  262
  275
  288
Fixed operating expenses, $m
 
  142
  146
  150
  153
  157
  161
  165
  169
  174
  178
  182
  187
  192
  196
  201
  206
  212
  217
  222
  228
  233
  239
  245
  251
  258
  264
  271
  278
  284
  292
Total operating expenses, $m
  224
  232
  238
  244
  250
  257
  264
  272
  279
  288
  297
  305
  315
  326
  335
  346
  358
  371
  383
  395
  409
  423
  437
  453
  469
  486
  503
  521
  540
  559
  580
Operating income, $m
  64
  61
  63
  64
  67
  69
  73
  77
  81
  86
  92
  98
  105
  113
  121
  130
  139
  149
  160
  172
  184
  198
  212
  227
  244
  261
  279
  299
  319
  341
  365
EBITDA, $m
  64
  62
  63
  65
  67
  70
  73
  77
  82
  87
  92
  98
  105
  113
  121
  130
  139
  149
  160
  172
  185
  198
  212
  228
  244
  261
  279
  299
  320
  342
  365
Interest expense (income), $m
  0
  0
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
Earnings before tax, $m
  64
  61
  64
  66
  68
  71
  74
  78
  83
  88
  93
  100
  107
  114
  122
  131
  140
  150
  161
  173
  185
  199
  213
  228
  244
  261
  280
  299
  320
  342
  365
Tax expense, $m
  9
  17
  17
  18
  18
  19
  20
  21
  22
  24
  25
  27
  29
  31
  33
  35
  38
  41
  44
  47
  50
  54
  57
  62
  66
  71
  76
  81
  86
  92
  99
Net income, $m
  55
  45
  47
  48
  50
  52
  54
  57
  60
  64
  68
  73
  78
  83
  89
  95
  102
  110
  118
  126
  135
  145
  155
  167
  178
  191
  204
  218
  233
  249
  266

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  126
  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
  148
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  63
  66
  69
  72
Adjusted assets (=assets-cash), $m
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  63
  66
  69
  72
Revenue / Adjusted assets
  13.091
  13.364
  13.087
  12.833
  13.208
  13.080
  12.962
  12.926
  12.893
  12.897
  12.967
  13.032
  13.125
  13.273
  13.057
  13.222
  13.079
  12.975
  13.244
  13.186
  13.178
  13.213
  13.000
  13.077
  13.204
  13.088
  13.033
  13.016
  13.015
  13.058
  13.125
Average production assets, $m
  1
  1
  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
  3
  3
  3
Working capital, $m
  84
  -43
  -44
  -45
  -46
  -48
  -49
  -51
  -53
  -55
  -57
  -59
  -61
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -87
  -91
  -95
  -99
  -104
  -109
  -114
  -120
  -125
  -132
  -138
Total debt, $m
  0
  -46
  -45
  -45
  -44
  -44
  -43
  -42
  -41
  -40
  -39
  -38
  -37
  -36
  -35
  -33
  -32
  -30
  -29
  -27
  -25
  -23
  -21
  -19
  -17
  -15
  -12
  -10
  -7
  -4
  -1
Total liabilities, $m
  66
  20
  21
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
Total equity, $m
  82
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Total liabilities and equity, $m
  148
  22
  23
  23
  24
  24
  26
  27
  28
  29
  30
  31
  32
  33
  34
  37
  38
  40
  41
  43
  46
  48
  50
  52
  54
  57
  60
  62
  66
  69
  72
Debt-to-equity ratio
  0.000
  -20.410
  -19.750
  -19.030
  -18.260
  -17.460
  -16.630
  -15.790
  -14.940
  -14.080
  -13.230
  -12.380
  -11.550
  -10.730
  -9.930
  -9.140
  -8.380
  -7.640
  -6.930
  -6.230
  -5.560
  -4.920
  -4.300
  -3.700
  -3.130
  -2.570
  -2.050
  -1.540
  -1.050
  -0.590
  -0.150
Adjusted equity ratio
  -2.000
  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
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  55
  45
  47
  48
  50
  52
  54
  57
  60
  64
  68
  73
  78
  83
  89
  95
  102
  110
  118
  126
  135
  145
  155
  167
  178
  191
  204
  218
  233
  249
  266
Depreciation, amort., depletion, $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
Funds from operations, $m
  50
  45
  47
  48
  50
  52
  55
  57
  61
  64
  68
  73
  78
  83
  89
  96
  102
  110
  118
  126
  135
  145
  156
  167
  179
  191
  204
  219
  234
  250
  267
Change in working capital, $m
  -3
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from operations, $m
  53
  46
  48
  49
  51
  53
  56
  59
  62
  66
  71
  75
  80
  86
  92
  98
  105
  113
  121
  130
  139
  149
  160
  171
  183
  196
  210
  224
  239
  256
  273
Maintenance CAPEX, $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
New CAPEX, $m
  -1
  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 investing activities, $m
  -1
  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
Free cash flow, $m
  52
  46
  48
  49
  51
  53
  56
  59
  62
  66
  70
  75
  80
  86
  92
  98
  105
  113
  121
  130
  139
  149
  160
  171
  183
  196
  209
  224
  239
  255
  273
Issuance/(repayment) of debt, $m
  0
  -46
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Issuance/(repurchase) of shares, $m
  -24
  1
  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  
  -24
  -45
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Total cash flow (excl. dividends), $m
  28
  2
  48
  50
  52
  54
  57
  60
  63
  67
  71
  76
  81
  87
  93
  100
  107
  114
  123
  131
  141
  151
  162
  173
  185
  198
  212
  226
  242
  258
  276
Retained Cash Flow (-), $m
  -25
  -46
  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
Prev. year cash balance distribution, $m
 
  126
  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
 
  81
  48
  50
  52
  54
  57
  60
  63
  67
  71
  76
  81
  87
  93
  99
  107
  114
  122
  131
  141
  151
  161
  173
  185
  198
  212
  226
  242
  258
  275
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
 
  78
  44
  43
  43
  42
  41
  40
  39
  38
  37
  36
  35
  33
  31
  29
  27
  25
  23
  20
  18
  16
  13
  11
  9
  8
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
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Natural Health Trends Corp. is a direct-selling and e-commerce company. The Company, through its subsidiaries, sells personal care, wellness, and quality of life products under the NHT Global brand. The Company's subsidiaries have presence in various markets, such as North America; Greater China, which consists of Hong Kong, Taiwan and China; South Korea; Singapore; Malaysia; Japan; and Europe. It also operates in Russia and Kazakhstan through its engagement with a local service provider. As of December 31, 2016, the Company offered a line of NHT Global branded products in five categories: wellness, herbal, beauty, lifestyle, and home, its newest category. Its wellness products include Premium Noni Juice, Triotein, Cluster X2, Children's Chewable MultiVitamin, ReStor Silver, ReStor Vital, HerBalance, Trifusion Max, Glucosamine 2200, FibeRich, Energin, Enhanced Essential Probiotics, Omega 3 Essential Fatty Acids, Memory Burst, StemRenu, OcuFocus, and FE Enzyme Toothpaste.

FINANCIAL RATIOS  of  Natural Health Trends (NHTC)

Valuation Ratios
P/E Ratio 3.9
Price to Sales 0.8
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 4.1
Price to Free Cash Flow 4.2
Growth Rates
Sales Growth Rate 8.7%
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 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 40.4%
Ret/ On Assets - 3 Yr. Avg. 49.4%
Return On Total Capital 79.1%
Ret/ On T. Cap. - 3 Yr. Avg. 105.8%
Return On Equity 79.1%
Return On Equity - 3 Yr. Avg. 105.8%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 80.9%
Gross Margin - 3 Yr. Avg. 79.6%
EBITDA Margin 22.2%
EBITDA Margin - 3 Yr. Avg. 19%
Operating Margin 22.2%
Oper. Margin - 3 Yr. Avg. 19%
Pre-Tax Margin 22.2%
Pre-Tax Margin - 3 Yr. Avg. 19%
Net Profit Margin 19.1%
Net Profit Margin - 3 Yr. Avg. 17.6%
Effective Tax Rate 14.1%
Eff/ Tax Rate - 3 Yr. Avg. 7%
Payout Ratio 12.7%

NHTC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NHTC stock intrinsic value calculation we used $288 million for the last fiscal year's total revenue generated by Natural Health Trends. The default revenue input number comes from 2016 income statement of Natural Health Trends. 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 NHTC 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 NHTC is calculated based on our internal credit rating of Natural Health Trends, 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 Natural Health Trends.
    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 NHTC stock the variable cost ratio is equal to 30.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $139 million in the base year in the intrinsic value calculation for NHTC 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 Natural Health Trends.

Corporate tax rate of 27% is the nominal tax rate for Natural Health Trends. 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 NHTC 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 NHTC are equal to 0.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Natural Health Trends 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 NHTC is equal to -14.6%. 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 - $82 million for Natural Health Trends - 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 11.342 million for Natural Health Trends 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 Natural Health Trends at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Natural Health Trends posts 2Q profit   [Aug-02-17 10:37PM  Associated Press]
▶ Natural Health Trends posts 1Q profit   [05:01AM  Associated Press]
▶ Natural Health Trends posts 4Q profit   [Feb-08-17 09:13AM  Associated Press]
▶ Twitter Is Poised to Slay the Bears Soon   [Feb-06-17 04:53PM  TheStreet.com]
▶ Is Natural Health Trends Corp. (NHTC) A Good Stock To Buy?   [Dec-10-16 08:38AM  at Insider Monkey]
▶ 5 Stocks Ripe For Activist Takeovers   [11:08AM  at Insider Monkey]
▶ Top Ten 'Magic Formula' Stocks For Long-Term Returns   [Nov-14-16 12:34PM  at Forbes]
▶ Natural Health Trends Celebrates 15th Anniversary   [Aug-18-16 09:00AM  GlobeNewswire]
Financial statements of NHTC
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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