Intrinsic value of Network-1 Technologies - NTIP

Previous Close

$3.75

  Intrinsic Value

$45.84

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

0%

Previous close

$3.75

 
Intrinsic value

$45.84

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of NTIP 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 0.1

 

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, %
  282.35
  20.00
  18.50
  17.15
  15.94
  14.84
  13.86
  12.97
  12.17
  11.46
  10.81
  10.23
  9.71
  9.24
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.03
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
Revenue, $m
  65
  78
  92
  108
  126
  144
  164
  185
  208
  232
  257
  283
  311
  339
  369
  400
  433
  466
  501
  538
  576
  615
  656
  698
  742
  788
  836
  886
  938
  993
  1,049
Variable operating expenses, $m
 
  32
  38
  45
  52
  60
  68
  77
  86
  96
  107
  118
  129
  141
  153
  166
  180
  194
  208
  223
  239
  255
  272
  290
  308
  327
  347
  368
  389
  412
  435
Fixed operating expenses, $m
 
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  13
Total operating expenses, $m
  33
  38
  44
  51
  59
  67
  75
  84
  93
  103
  115
  126
  137
  149
  161
  175
  189
  203
  217
  233
  249
  265
  282
  301
  319
  338
  358
  380
  401
  424
  448
Operating income, $m
  32
  39
  48
  57
  67
  78
  89
  101
  114
  128
  143
  158
  174
  190
  208
  226
  244
  264
  284
  305
  327
  350
  373
  398
  423
  450
  478
  507
  537
  568
  601
EBITDA, $m
  33
  40
  48
  57
  67
  78
  89
  102
  115
  129
  143
  158
  174
  191
  208
  226
  245
  265
  285
  306
  328
  351
  375
  399
  425
  452
  480
  509
  539
  571
  604
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
Earnings before tax, $m
  32
  39
  48
  57
  67
  77
  89
  101
  114
  128
  142
  157
  173
  190
  207
  225
  243
  263
  283
  304
  326
  348
  372
  396
  422
  448
  476
  505
  535
  566
  599
Tax expense, $m
  9
  11
  13
  15
  18
  21
  24
  27
  31
  34
  38
  42
  47
  51
  56
  61
  66
  71
  76
  82
  88
  94
  100
  107
  114
  121
  128
  136
  144
  153
  162
Net income, $m
  23
  29
  35
  41
  49
  56
  65
  74
  83
  93
  104
  115
  126
  138
  151
  164
  178
  192
  207
  222
  238
  254
  271
  289
  308
  327
  347
  368
  390
  413
  437

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  52
  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
  58
  7
  9
  10
  12
  13
  15
  17
  19
  21
  24
  26
  29
  31
  34
  37
  40
  43
  46
  50
  53
  57
  61
  64
  69
  73
  77
  82
  87
  92
  97
Adjusted assets (=assets-cash), $m
  6
  7
  9
  10
  12
  13
  15
  17
  19
  21
  24
  26
  29
  31
  34
  37
  40
  43
  46
  50
  53
  57
  61
  64
  69
  73
  77
  82
  87
  92
  97
Revenue / Adjusted assets
  10.833
  11.143
  10.222
  10.800
  10.500
  11.077
  10.933
  10.882
  10.947
  11.048
  10.708
  10.885
  10.724
  10.935
  10.853
  10.811
  10.825
  10.837
  10.891
  10.760
  10.868
  10.789
  10.754
  10.906
  10.754
  10.795
  10.857
  10.805
  10.782
  10.793
  10.814
Average production assets, $m
  2
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
Working capital, $m
  51
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
Total debt, $m
  0
  1
  2
  3
  5
  6
  8
  9
  11
  13
  15
  17
  19
  21
  23
  26
  28
  31
  34
  36
  39
  42
  45
  49
  52
  56
  59
  63
  67
  71
  76
Total liabilities, $m
  5
  6
  7
  8
  10
  11
  13
  14
  16
  18
  20
  22
  24
  26
  28
  31
  33
  36
  39
  41
  44
  47
  50
  54
  57
  61
  64
  68
  72
  76
  81
Total equity, $m
  53
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
Total liabilities and equity, $m
  58
  7
  8
  10
  12
  13
  16
  17
  19
  22
  24
  26
  29
  31
  34
  37
  40
  43
  47
  49
  53
  56
  60
  65
  68
  73
  77
  82
  86
  91
  97
Debt-to-equity ratio
  0.000
  0.830
  1.480
  1.990
  2.400
  2.740
  3.010
  3.240
  3.430
  3.590
  3.730
  3.840
  3.940
  4.030
  4.110
  4.180
  4.240
  4.290
  4.340
  4.380
  4.420
  4.460
  4.490
  4.520
  4.550
  4.580
  4.600
  4.620
  4.640
  4.660
  4.680
Adjusted equity ratio
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  23
  29
  35
  41
  49
  56
  65
  74
  83
  93
  104
  115
  126
  138
  151
  164
  178
  192
  207
  222
  238
  254
  271
  289
  308
  327
  347
  368
  390
  413
  437
Depreciation, amort., depletion, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
Funds from operations, $m
  31
  29
  35
  42
  49
  57
  65
  74
  84
  94
  104
  115
  127
  139
  152
  165
  179
  193
  208
  223
  239
  256
  273
  291
  310
  329
  349
  370
  393
  415
  439
Change in working capital, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  30
  29
  35
  42
  49
  57
  66
  75
  84
  94
  105
  116
  127
  140
  152
  165
  179
  193
  208
  224
  240
  256
  274
  292
  310
  330
  350
  371
  393
  416
  440
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
Free cash flow, $m
  30
  29
  35
  41
  49
  56
  65
  74
  83
  93
  104
  115
  126
  138
  151
  164
  177
  192
  206
  222
  238
  254
  271
  289
  308
  327
  347
  368
  390
  413
  437
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  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  
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
Total cash flow (excl. dividends), $m
  30
  30
  36
  43
  50
  58
  66
  75
  85
  95
  106
  117
  128
  140
  153
  166
  180
  194
  209
  224
  240
  257
  274
  292
  311
  331
  351
  372
  394
  417
  441
Retained Cash Flow (-), $m
  -24
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Prev. year cash balance distribution, $m
 
  52
  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
 
  82
  36
  42
  50
  58
  66
  75
  85
  95
  105
  116
  128
  140
  153
  166
  179
  194
  208
  224
  240
  256
  274
  292
  310
  330
  350
  371
  393
  416
  440
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
  33
  37
  41
  45
  48
  51
  53
  54
  55
  55
  55
  53
  51
  49
  46
  42
  38
  34
  30
  27
  23
  19
  16
  13
  10
  8
  6
  5
  3
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
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Network-1 Technologies, Inc. develops, licenses, and protects intellectual property assets. It owns 27 patents that relate to various technologies, including patents covering the delivery of power over Ethernet cables for the purpose of remotely powering network devices, such as wireless access ports, IP phones, and network based cameras; foundational technologies that enable unified search and indexing, displaying, and archiving of documents in a computer system; enabling technology for identifying media content on the Internet; and systems and methods for the transmission of audio, video, and data over computer and telephony networks. The company was formerly known as Network-1 Security Solutions, Inc. and changed its name to Network-1 Technologies, Inc. in October 2013 to reflect the nature of its business. Network-1 Technologies, Inc. was founded in 1990 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  Network-1 Technologies (NTIP)

Valuation Ratios
P/E Ratio 3.9
Price to Sales 1.4
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 3
Price to Free Cash Flow 3
Growth Rates
Sales Growth Rate 282.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 52.3%
Ret/ On Assets - 3 Yr. Avg. 24.1%
Return On Total Capital 56.1%
Ret/ On T. Cap. - 3 Yr. Avg. 25.8%
Return On Equity 56.1%
Return On Equity - 3 Yr. Avg. 25.8%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 60%
Gross Margin - 3 Yr. Avg. 66.6%
EBITDA Margin 50.8%
EBITDA Margin - 3 Yr. Avg. 42.6%
Operating Margin 49.2%
Oper. Margin - 3 Yr. Avg. 29.8%
Pre-Tax Margin 49.2%
Pre-Tax Margin - 3 Yr. Avg. 32.6%
Net Profit Margin 35.4%
Net Profit Margin - 3 Yr. Avg. 25.2%
Effective Tax Rate 28.1%
Eff/ Tax Rate - 3 Yr. Avg. 20.5%
Payout Ratio 0%

NTIP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NTIP stock intrinsic value calculation we used $65 million for the last fiscal year's total revenue generated by Network-1 Technologies. The default revenue input number comes from 2016 income statement of Network-1 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 NTIP stock valuation model: a) initial revenue growth rate of 20% 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 NTIP is calculated based on our internal credit rating of Network-1 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 Network-1 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 NTIP stock the variable cost ratio is equal to 41.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $6 million in the base year in the intrinsic value calculation for NTIP 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 Network-1 Technologies.

Corporate tax rate of 27% is the nominal tax rate for Network-1 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 NTIP 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 NTIP are equal to 2.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Network-1 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 NTIP is equal to -1.5%. 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 - $53 million for Network-1 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 23.649 million for Network-1 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 Network-1 Technologies at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Network-1 Reports Second Quarter Results   [Aug-14-17 08:00AM  Marketwired]
▶ Network-1 Declares Semi-Annual Dividend   [Jul-26-17 12:56PM  Marketwired]
▶ Network-1 Increases its Share Repurchase Program   [Jun-16-17 08:30AM  Marketwired]
▶ Network-1 Reports First Quarter 2017 Results   [May-15-17 08:30AM  Marketwired]
▶ Network-1 Commences Patent Litigation against Facebook   [May-10-17 08:30AM  Marketwired]
▶ /NOTICE TO DISREGARD - Network-1 Technologies, Inc.   [Mar-27-17 11:24AM  Marketwired]
▶ Network-1 Expands its Cox Patent Portfolio to 16 Patents   [Jan-10-17 01:00PM  Marketwired]
▶ Network-1 Announces Approval of Dividend Policy   [Dec-09-16 08:49AM  Marketwired]
▶ Court Denies Apple's Motion to Appeal Kessler Ruling   [Sep-28  08:45AM  PR Newswire]
Stock chart of NTIP Financial statements of NTIP
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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