Intrinsic value of New Home - NWHM

Previous Close

$12.72

  Intrinsic Value

$36.44

stock screener

  Rating & Target

str. buy

+186%

Previous close

$12.72

 
Intrinsic value

$36.44

 
Up/down potential

+186%

 
Rating

str. buy

We calculate the intrinsic value of NWHM 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 0.3

 

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, %
  61.40
  32.10
  29.39
  26.95
  24.76
  22.78
  21.00
  19.40
  17.96
  16.67
  15.50
  14.45
  13.50
  12.65
  11.89
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.97
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
Revenue, $m
  694
  917
  1,186
  1,506
  1,879
  2,307
  2,791
  3,333
  3,931
  4,586
  5,297
  6,063
  6,881
  7,752
  8,674
  9,645
  10,666
  11,735
  12,852
  14,017
  15,231
  16,494
  17,808
  19,174
  20,593
  22,068
  23,601
  25,194
  26,851
  28,574
  30,367
Variable operating expenses, $m
 
  872
  1,128
  1,432
  1,787
  2,194
  2,654
  3,169
  3,739
  4,362
  5,038
  5,766
  6,544
  7,372
  8,249
  9,173
  10,143
  11,160
  12,222
  13,330
  14,485
  15,686
  16,936
  18,234
  19,584
  20,987
  22,444
  23,959
  25,535
  27,174
  28,879
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
  668
  872
  1,128
  1,432
  1,787
  2,194
  2,654
  3,169
  3,739
  4,362
  5,038
  5,766
  6,544
  7,372
  8,249
  9,173
  10,143
  11,160
  12,222
  13,330
  14,485
  15,686
  16,936
  18,234
  19,584
  20,987
  22,444
  23,959
  25,535
  27,174
  28,879
Operating income, $m
  27
  45
  58
  74
  92
  113
  137
  163
  193
  225
  260
  297
  337
  380
  425
  473
  523
  575
  630
  687
  746
  808
  873
  940
  1,009
  1,081
  1,156
  1,235
  1,316
  1,400
  1,488
EBITDA, $m
  28
  45
  58
  74
  92
  113
  137
  163
  193
  225
  260
  297
  337
  380
  425
  473
  523
  575
  630
  687
  746
  808
  873
  940
  1,009
  1,081
  1,156
  1,235
  1,316
  1,400
  1,488
Interest expense (income), $m
  0
  4
  6
  8
  11
  15
  18
  23
  27
  32
  38
  44
  51
  58
  66
  74
  83
  92
  101
  111
  121
  132
  143
  154
  166
  179
  191
  205
  219
  233
  248
Earnings before tax, $m
  34
  41
  52
  65
  81
  99
  119
  141
  165
  192
  221
  253
  286
  322
  359
  399
  440
  483
  529
  576
  625
  677
  730
  785
  843
  903
  965
  1,030
  1,097
  1,167
  1,240
Tax expense, $m
  13
  11
  14
  18
  22
  27
  32
  38
  45
  52
  60
  68
  77
  87
  97
  108
  119
  131
  143
  156
  169
  183
  197
  212
  228
  244
  261
  278
  296
  315
  335
Net income, $m
  21
  30
  38
  48
  59
  72
  87
  103
  121
  140
  162
  184
  209
  235
  262
  291
  321
  353
  386
  421
  457
  494
  533
  573
  615
  659
  704
  752
  801
  852
  905

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
  419
  512
  663
  842
  1,050
  1,289
  1,560
  1,863
  2,197
  2,564
  2,961
  3,389
  3,847
  4,333
  4,848
  5,391
  5,962
  6,559
  7,184
  7,835
  8,514
  9,220
  9,954
  10,718
  11,511
  12,335
  13,192
  14,083
  15,009
  15,972
  16,975
Adjusted assets (=assets-cash), $m
  388
  512
  663
  842
  1,050
  1,289
  1,560
  1,863
  2,197
  2,564
  2,961
  3,389
  3,847
  4,333
  4,848
  5,391
  5,962
  6,559
  7,184
  7,835
  8,514
  9,220
  9,954
  10,718
  11,511
  12,335
  13,192
  14,083
  15,009
  15,972
  16,975
Revenue / Adjusted assets
  1.789
  1.791
  1.789
  1.789
  1.790
  1.790
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
Average production assets, $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
Working capital, $m
  0
  -41
  -53
  -68
  -85
  -104
  -126
  -150
  -177
  -206
  -238
  -273
  -310
  -349
  -390
  -434
  -480
  -528
  -578
  -631
  -685
  -742
  -801
  -863
  -927
  -993
  -1,062
  -1,134
  -1,208
  -1,286
  -1,367
Total debt, $m
  118
  174
  241
  321
  414
  522
  643
  779
  928
  1,093
  1,271
  1,462
  1,667
  1,885
  2,116
  2,359
  2,615
  2,883
  3,162
  3,454
  3,758
  4,075
  4,404
  4,746
  5,101
  5,470
  5,854
  6,253
  6,668
  7,099
  7,549
Total liabilities, $m
  175
  230
  297
  377
  470
  578
  699
  835
  984
  1,149
  1,327
  1,518
  1,723
  1,941
  2,172
  2,415
  2,671
  2,939
  3,218
  3,510
  3,814
  4,131
  4,460
  4,802
  5,157
  5,526
  5,910
  6,309
  6,724
  7,155
  7,605
Total equity, $m
  245
  283
  366
  465
  580
  712
  861
  1,028
  1,213
  1,415
  1,635
  1,871
  2,123
  2,392
  2,676
  2,976
  3,291
  3,621
  3,965
  4,325
  4,700
  5,089
  5,495
  5,916
  6,354
  6,809
  7,282
  7,774
  8,285
  8,817
  9,370
Total liabilities and equity, $m
  420
  513
  663
  842
  1,050
  1,290
  1,560
  1,863
  2,197
  2,564
  2,962
  3,389
  3,846
  4,333
  4,848
  5,391
  5,962
  6,560
  7,183
  7,835
  8,514
  9,220
  9,955
  10,718
  11,511
  12,335
  13,192
  14,083
  15,009
  15,972
  16,975
Debt-to-equity ratio
  0.482
  0.610
  0.660
  0.690
  0.710
  0.730
  0.750
  0.760
  0.770
  0.770
  0.780
  0.780
  0.790
  0.790
  0.790
  0.790
  0.790
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.810
  0.810
Adjusted equity ratio
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  21
  30
  38
  48
  59
  72
  87
  103
  121
  140
  162
  184
  209
  235
  262
  291
  321
  353
  386
  421
  457
  494
  533
  573
  615
  659
  704
  752
  801
  852
  905
Depreciation, amort., depletion, $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
Funds from operations, $m
  -109
  30
  38
  48
  59
  72
  87
  103
  121
  140
  162
  184
  209
  235
  262
  291
  321
  353
  386
  421
  457
  494
  533
  573
  615
  659
  704
  752
  801
  852
  905
Change in working capital, $m
  -67
  -10
  -12
  -14
  -17
  -19
  -22
  -24
  -27
  -29
  -32
  -34
  -37
  -39
  -41
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
Cash from operations, $m
  -42
  40
  50
  62
  76
  91
  108
  127
  148
  170
  194
  219
  246
  274
  304
  335
  367
  401
  436
  473
  511
  551
  592
  635
  679
  725
  773
  823
  875
  929
  986
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
  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 investing activities, $m
  2
  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
  -40
  40
  50
  62
  76
  91
  108
  127
  148
  170
  194
  219
  246
  274
  304
  335
  367
  401
  436
  473
  511
  551
  592
  635
  679
  725
  773
  823
  875
  929
  986
Issuance/(repayment) of debt, $m
  28
  56
  67
  80
  93
  107
  121
  136
  150
  164
  178
  192
  205
  218
  231
  243
  256
  268
  280
  292
  304
  316
  329
  342
  355
  369
  384
  399
  415
  432
  449
Issuance/(repurchase) of shares, $m
  0
  39
  45
  51
  56
  60
  63
  64
  64
  62
  58
  52
  44
  34
  22
  9
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  25
  95
  112
  131
  149
  167
  184
  200
  214
  226
  236
  244
  249
  252
  253
  252
  256
  268
  280
  292
  304
  316
  329
  342
  355
  369
  384
  399
  415
  432
  449
Total cash flow (excl. dividends), $m
  -15
  134
  163
  193
  225
  258
  293
  327
  362
  396
  429
  462
  494
  526
  557
  587
  623
  669
  716
  765
  815
  867
  921
  977
  1,035
  1,095
  1,157
  1,222
  1,290
  1,361
  1,435
Retained Cash Flow (-), $m
  -24
  -69
  -83
  -99
  -115
  -132
  -149
  -167
  -185
  -202
  -219
  -236
  -253
  -269
  -284
  -300
  -315
  -330
  -345
  -360
  -375
  -390
  -405
  -421
  -438
  -455
  -473
  -492
  -511
  -532
  -553
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
 
  97
  80
  94
  110
  126
  143
  160
  177
  194
  210
  226
  242
  257
  272
  287
  308
  339
  371
  405
  441
  477
  516
  555
  597
  640
  684
  731
  779
  829
  881
Discount rate, %
 
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
 
  91
  71
  79
  86
  91
  95
  96
  96
  95
  91
  87
  81
  74
  67
  59
  53
  48
  42
  37
  31
  26
  21
  17
  13
  10
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  85.6
  74.6
  66.1
  59.5
  54.3
  50.2
  47.0
  44.4
  42.4
  40.9
  39.7
  38.9
  38.3
  38.0
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9
  37.9

The New Home Company Inc. is a homebuilding company. The Company focuses on the design, construction and sale of consumer-driven homes in various metropolitan areas within certain markets in California and Arizona, including coastal Southern California, the San Francisco Bay area, metro Sacramento and the greater Phoenix area. The Company's segments include homebuilding and fee building. The homebuilding operations consist of divisions in Northern California, Southern California and its division in Arizona, which is established through the purchase of lots in an unconsolidated joint venture. The Company is focused on building and selling homes for its own account. It is focused on identifying sites and creating communities that allow it to design, construct and sell consumer-driven single-family detached and attached homes in major metropolitan areas in coastal Southern California, the San Francisco Bay area, metro Sacramento and the greater Phoenix area.

FINANCIAL RATIOS  of  New Home (NWHM)

Valuation Ratios
P/E Ratio 12.5
Price to Sales 0.4
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow -6.3
Price to Free Cash Flow -6.3
Growth Rates
Sales Growth Rate 61.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 48.2%
Total Debt to Equity 48.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 5%
Return On Total Capital 6.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.7%
Return On Equity 9%
Return On Equity - 3 Yr. Avg. 8.6%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 11.4%
Gross Margin - 3 Yr. Avg. 10.6%
EBITDA Margin 5%
EBITDA Margin - 3 Yr. Avg. 5.4%
Operating Margin 3.7%
Oper. Margin - 3 Yr. Avg. 2.2%
Pre-Tax Margin 4.9%
Pre-Tax Margin - 3 Yr. Avg. 5.4%
Net Profit Margin 3%
Net Profit Margin - 3 Yr. Avg. 3.8%
Effective Tax Rate 38.2%
Eff/ Tax Rate - 3 Yr. Avg. 25.5%
Payout Ratio 0%

NWHM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NWHM stock intrinsic value calculation we used $694 million for the last fiscal year's total revenue generated by New Home. The default revenue input number comes from 2016 income statement of New Home. 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 NWHM stock valuation model: a) initial revenue growth rate of 32.1% 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 5.6%, whose default value for NWHM is calculated based on our internal credit rating of New Home, 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 New Home.
    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 NWHM stock the variable cost ratio is equal to 95.1%.

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 NWHM 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 New Home.

Corporate tax rate of 27% is the nominal tax rate for New Home. 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 NWHM 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 NWHM are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in New Home 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 NWHM is equal to -4.5%. 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 - $245 million for New Home - 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 20.876 million for New Home 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 New Home at the current share price and the inputted number of shares is $0.3 billion.

RELATED COMPANIES Price Int.Val. Rating
LGIH LGI Homes 70.47 378.59  str.buy
KBH KB Home 30.92 85.04  str.buy
LEN Lennar Cl A 61.68 104.44  str.buy
DHI D.R. Horton 50.47 112.28  str.buy
MDC M.D.C. Holding 31.38 52.79  buy
GRBK Green Brick Pa 10.95 7.13  sell
AVHI AV Homes 17.15 20.77  buy
HOV Hovnanian Ente 2.52 0.99  str.sell
BZH Beazer Homes U 19.28 6.07  str.sell
MTH Meritage Homes 50.65 37.20  sell

COMPANY NEWS

▶ New Home posts 3Q profit   [Oct-27-17 06:05AM  Associated Press]
▶ New Home posts 2Q profit   [Jul-28-17 12:28AM  Associated Press]
▶ New Home posts 1Q profit   [Apr-27-17 06:22AM  Associated Press]
▶ LD Micro Index Reconstitution as of February 1, 2017   [Feb-01-17 09:45AM  Accesswire]
▶ Is Daqo New Energy Corp (DQ) A Good Stock To Buy?   [Dec-16-16 12:29AM  at Insider Monkey]
▶ How Verso Corporation (VRS) Stacks Up Against Its Peers   [Dec-14-16 06:03AM  at Insider Monkey]
Financial statements of NWHM
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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