Intrinsic value of NAPCO Security Technologies - NSSC

Previous Close

$8.70

  Intrinsic Value

$0.76

stock screener

  Rating & Target

str. sell

-91%

Previous close

$8.70

 
Intrinsic value

$0.76

 
Up/down potential

-91%

 
Rating

str. sell

We calculate the intrinsic value of NSSC 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 0.2

 

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, %
  4.82
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
Revenue, $m
  87
  94
  102
  110
  118
  126
  135
  144
  153
  163
  174
  184
  195
  207
  219
  232
  245
  258
  273
  288
  303
  320
  337
  355
  374
  393
  414
  436
  458
  482
  507
Variable operating expenses, $m
 
  87
  94
  101
  108
  116
  124
  132
  141
  150
  160
  169
  180
  190
  201
  213
  225
  238
  251
  265
  279
  294
  310
  327
  344
  362
  381
  401
  422
  443
  466
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
  81
  87
  94
  101
  108
  116
  124
  132
  141
  150
  160
  169
  180
  190
  201
  213
  225
  238
  251
  265
  279
  294
  310
  327
  344
  362
  381
  401
  422
  443
  466
Operating income, $m
  6
  8
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  37
  39
  41
EBITDA, $m
  7
  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
  38
  40
  42
  44
  46
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
Earnings before tax, $m
  6
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  36
  38
Tax expense, $m
  0
  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
  8
  9
  9
  10
  10
Net income, $m
  6
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  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
  0
  0
  0
  0
  0
Total assets, $m
  71
  74
  80
  86
  92
  99
  105
  113
  120
  128
  136
  144
  153
  162
  171
  181
  191
  202
  213
  225
  237
  250
  263
  278
  292
  308
  324
  341
  358
  377
  396
Adjusted assets (=assets-cash), $m
  68
  74
  80
  86
  92
  99
  105
  113
  120
  128
  136
  144
  153
  162
  171
  181
  191
  202
  213
  225
  237
  250
  263
  278
  292
  308
  324
  341
  358
  377
  396
Revenue / Adjusted assets
  1.279
  1.270
  1.275
  1.279
  1.283
  1.273
  1.286
  1.274
  1.275
  1.273
  1.279
  1.278
  1.275
  1.278
  1.281
  1.282
  1.283
  1.277
  1.282
  1.280
  1.278
  1.280
  1.281
  1.277
  1.281
  1.276
  1.278
  1.279
  1.279
  1.279
  1.280
Average production assets, $m
  14
  15
  16
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  42
  44
  46
  49
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
Working capital, $m
  41
  41
  44
  48
  51
  55
  59
  63
  67
  71
  76
  80
  85
  90
  96
  101
  107
  113
  119
  126
  133
  140
  147
  155
  163
  172
  181
  190
  200
  211
  221
Total debt, $m
  4
  5
  6
  8
  9
  10
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  29
  32
  34
  36
  39
  42
  44
  47
  50
  53
  57
  60
  64
  68
  72
Total liabilities, $m
  14
  15
  16
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  42
  44
  46
  49
  52
  54
  57
  60
  63
  67
  70
  74
  78
  82
Total equity, $m
  57
  58
  63
  68
  73
  78
  84
  89
  95
  101
  108
  114
  121
  128
  136
  144
  152
  160
  169
  179
  188
  199
  209
  220
  232
  244
  257
  270
  284
  299
  315
Total liabilities and equity, $m
  71
  73
  79
  86
  92
  98
  106
  112
  120
  127
  136
  144
  152
  161
  171
  181
  191
  202
  213
  225
  237
  251
  263
  277
  292
  307
  324
  340
  358
  377
  397
Debt-to-equity ratio
  0.070
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.150
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.190
  0.200
  0.200
  0.200
  0.210
  0.210
  0.210
  0.210
  0.220
  0.220
  0.220
  0.220
  0.220
  0.230
  0.230
Adjusted equity ratio
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
Funds from operations, $m
  -3
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  30
  32
  34
Change in working capital, $m
  -5
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
Cash from operations, $m
  2
  3
  4
  4
  4
  5
  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
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
Cash from investing activities, $m
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
Free cash flow, $m
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
Issuance/(repayment) of debt, $m
  -1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
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  
  -1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
Total cash flow (excl. dividends), $m
  0
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
Retained Cash Flow (-), $m
  -6
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
Prev. year cash balance distribution, $m
 
  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
  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
 
  1
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
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
 
  1
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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NAPCO Security Technologies, Inc. is a manufacturer of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold across the world principally to independent distributors, dealers and installers of security equipment. The Company manufactures and markets various products for alarm systems, which include automatic communicators, control panels, combination control panels/digital communicators and digital keypad systems, fire alarm control panel and area detectors. It manufactures a range of door locking devices, including microprocessor-based electronic door locks with push button, card reader and bio-metric operation, door alarms, mechanical door locks and simple dead bolt locks. It also markets peripheral and related equipment manufactured by other companies.

FINANCIAL RATIOS  of  NAPCO Security Technologies (NSSC)

Valuation Ratios
P/E Ratio 27.3
Price to Sales 1.9
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 82
Price to Free Cash Flow 163.9
Growth Rates
Sales Growth Rate 4.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 7%
Total Debt to Equity 7%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.8%
Ret/ On Assets - 3 Yr. Avg. 8.6%
Return On Total Capital 10.3%
Ret/ On T. Cap. - 3 Yr. Avg. 9.9%
Return On Equity 11.1%
Return On Equity - 3 Yr. Avg. 11.4%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 34.5%
Gross Margin - 3 Yr. Avg. 33.9%
EBITDA Margin 8%
EBITDA Margin - 3 Yr. Avg. 8.5%
Operating Margin 6.9%
Oper. Margin - 3 Yr. Avg. 7.7%
Pre-Tax Margin 6.9%
Pre-Tax Margin - 3 Yr. Avg. 6.8%
Net Profit Margin 6.9%
Net Profit Margin - 3 Yr. Avg. 6.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

NSSC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NSSC stock intrinsic value calculation we used $87 million for the last fiscal year's total revenue generated by NAPCO Security Technologies. The default revenue input number comes from 2017 income statement of NAPCO Security Technologies. 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 NSSC stock valuation model: a) initial revenue growth rate of 8.3% 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 NSSC is calculated based on our internal credit rating of NAPCO Security Technologies, 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 NAPCO Security Technologies.
    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 NSSC stock the variable cost ratio is equal to 92%.

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 NSSC 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 NAPCO Security Technologies.

Corporate tax rate of 27% is the nominal tax rate for NAPCO Security Technologies. 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 NSSC 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 NSSC are equal to 16.1%.

Life of production assets of 14 years is the average useful life of capital assets used in NAPCO Security Technologies 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 NSSC is equal to 43.7%. 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 NAPCO Security Technologies - 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 18.847 million for NAPCO Security Technologies 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 NAPCO Security Technologies at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Napco posts 1Q profit   [Nov-06-17 08:13AM  Associated Press]
▶ Napco posts 4Q profit   [Sep-05-17 10:25PM  Associated Press]
▶ NAPCO Security Technologies Added to the Russell Indexes   [Jun-28-17 08:00AM  PR Newswire]
▶ Napco posts 3Q profit   [08:10AM  Associated Press]
▶ Napco posts 2Q profit   [08:11AM  Associated Press]
▶ NAPCO Security Technologies Products in Houston Schools   [Nov-14-16 08:00AM  PR Newswire]
▶ NAPCO Security Technologies to Attend CEDIA 2016   [Aug-15-16 08:00AM  PR Newswire]
▶ NAPCO Security to Attend Campus Safety Conference   [Aug-01-16 09:00AM  PR Newswire]
Financial statements of NSSC
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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