Intrinsic value of Five Oaks Investment - OAKS

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$4.78

  Intrinsic Value

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  Value-price divergence*

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$4.78

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

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

We calculate the intrinsic value of OAKS 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, %
  -18.42
  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
  93
  116
  119
  122
  125
  129
  133
  138
  143
  148
  154
  160
  166
  173
  181
  188
  197
  206
  215
  225
  235
  246
  257
  269
  282
  295
  310
  324
  340
  357
  374
Variable operating expenses, $m
 
  109
  112
  115
  118
  121
  125
  130
  134
  139
  144
  150
  156
  163
  170
  177
  185
  193
  202
  211
  221
  231
  242
  253
  265
  277
  291
  305
  319
  335
  351
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
  101
  109
  112
  115
  118
  121
  125
  130
  134
  139
  144
  150
  156
  163
  170
  177
  185
  193
  202
  211
  221
  231
  242
  253
  265
  277
  291
  305
  319
  335
  351
Operating income, $m
  -8
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
EBITDA, $m
  -8
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
Interest expense (income), $m
  6
  78
  78
  79
  82
  84
  86
  89
  92
  96
  99
  103
  108
  112
  117
  122
  127
  133
  139
  145
  152
  159
  166
  174
  182
  191
  200
  210
  220
  231
  242
Earnings before tax, $m
  -8
  -71
  -70
  -72
  -74
  -76
  -78
  -81
  -84
  -87
  -90
  -94
  -97
  -101
  -106
  -110
  -115
  -120
  -126
  -131
  -137
  -144
  -151
  -158
  -165
  -173
  -181
  -190
  -199
  -209
  -219
Tax expense, $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
Net income, $m
  -8
  -71
  -70
  -72
  -74
  -76
  -78
  -81
  -84
  -87
  -90
  -94
  -97
  -101
  -106
  -110
  -115
  -120
  -126
  -131
  -137
  -144
  -151
  -158
  -165
  -173
  -181
  -190
  -199
  -209
  -219

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  28
  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
  2,300
  2,528
  2,586
  2,652
  2,727
  2,810
  2,900
  2,999
  3,106
  3,221
  3,345
  3,477
  3,618
  3,769
  3,928
  4,098
  4,277
  4,467
  4,668
  4,881
  5,105
  5,342
  5,591
  5,854
  6,131
  6,423
  6,731
  7,054
  7,395
  7,753
  8,129
Adjusted assets (=assets-cash), $m
  2,272
  2,528
  2,586
  2,652
  2,727
  2,810
  2,900
  2,999
  3,106
  3,221
  3,345
  3,477
  3,618
  3,769
  3,928
  4,098
  4,277
  4,467
  4,668
  4,881
  5,105
  5,342
  5,591
  5,854
  6,131
  6,423
  6,731
  7,054
  7,395
  7,753
  8,129
Revenue / Adjusted assets
  0.041
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
  0.046
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
  58
  59
  61
  63
  65
  67
  69
  71
  74
  77
  80
  83
  87
  90
  94
  98
  103
  107
  112
  117
  123
  129
  135
  141
  148
  155
  162
  170
  178
  187
Total debt, $m
  2,144
  2,217
  2,269
  2,329
  2,396
  2,471
  2,552
  2,641
  2,738
  2,841
  2,952
  3,071
  3,198
  3,334
  3,477
  3,630
  3,792
  3,963
  4,144
  4,335
  4,537
  4,750
  4,974
  5,211
  5,460
  5,723
  6,000
  6,291
  6,597
  6,919
  7,258
Total liabilities, $m
  2,157
  2,275
  2,327
  2,387
  2,454
  2,529
  2,610
  2,699
  2,796
  2,899
  3,010
  3,129
  3,256
  3,392
  3,535
  3,688
  3,850
  4,021
  4,202
  4,393
  4,595
  4,808
  5,032
  5,269
  5,518
  5,781
  6,058
  6,349
  6,655
  6,977
  7,316
Total equity, $m
  142
  253
  259
  265
  273
  281
  290
  300
  311
  322
  334
  348
  362
  377
  393
  410
  428
  447
  467
  488
  511
  534
  559
  585
  613
  642
  673
  705
  739
  775
  813
Total liabilities and equity, $m
  2,299
  2,528
  2,586
  2,652
  2,727
  2,810
  2,900
  2,999
  3,107
  3,221
  3,344
  3,477
  3,618
  3,769
  3,928
  4,098
  4,278
  4,468
  4,669
  4,881
  5,106
  5,342
  5,591
  5,854
  6,131
  6,423
  6,731
  7,054
  7,394
  7,752
  8,129
Debt-to-equity ratio
  15.099
  8.770
  8.780
  8.780
  8.790
  8.790
  8.800
  8.810
  8.810
  8.820
  8.830
  8.830
  8.840
  8.850
  8.850
  8.860
  8.860
  8.870
  8.880
  8.880
  8.890
  8.890
  8.900
  8.900
  8.910
  8.910
  8.910
  8.920
  8.920
  8.930
  8.930
Adjusted equity ratio
  0.063
  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
  -8
  -71
  -70
  -72
  -74
  -76
  -78
  -81
  -84
  -87
  -90
  -94
  -97
  -101
  -106
  -110
  -115
  -120
  -126
  -131
  -137
  -144
  -151
  -158
  -165
  -173
  -181
  -190
  -199
  -209
  -219
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
  3
  -71
  -70
  -72
  -74
  -76
  -78
  -81
  -84
  -87
  -90
  -94
  -97
  -101
  -106
  -110
  -115
  -120
  -126
  -131
  -137
  -144
  -151
  -158
  -165
  -173
  -181
  -190
  -199
  -209
  -219
Change in working capital, $m
  1
  1
  1
  2
  2
  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
  9
Cash from operations, $m
  2
  -72
  -72
  -74
  -76
  -78
  -80
  -83
  -86
  -89
  -93
  -97
  -101
  -105
  -109
  -114
  -119
  -125
  -130
  -136
  -143
  -149
  -156
  -164
  -172
  -180
  -188
  -198
  -207
  -217
  -228
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
  -219
  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
  -217
  -72
  -72
  -74
  -76
  -78
  -80
  -83
  -86
  -89
  -93
  -97
  -101
  -105
  -109
  -114
  -119
  -125
  -130
  -136
  -143
  -149
  -156
  -164
  -172
  -180
  -188
  -198
  -207
  -217
  -228
Issuance/(repayment) of debt, $m
  236
  -20
  52
  60
  67
  74
  82
  89
  96
  104
  111
  119
  127
  135
  144
  153
  162
  171
  181
  191
  202
  213
  225
  237
  249
  263
  277
  291
  306
  322
  339
Issuance/(repurchase) of shares, $m
  15
  168
  25
  20
  16
  12
  8
  4
  1
  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  
  251
  148
  77
  80
  83
  86
  90
  93
  97
  104
  111
  119
  127
  135
  144
  153
  162
  171
  181
  191
  202
  213
  225
  237
  249
  263
  277
  291
  306
  322
  339
Total cash flow (excl. dividends), $m
  34
  -92
  -19
  -14
  -8
  -3
  1
  6
  10
  14
  18
  22
  26
  30
  34
  38
  42
  47
  51
  55
  59
  64
  68
  73
  78
  83
  88
  94
  99
  105
  111
Retained Cash Flow (-), $m
  35
  -76
  -6
  -7
  -7
  -8
  -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
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
 
  0
  0
  0
  0
  0
  0
  0
  0
  3
  6
  9
  12
  15
  18
  21
  24
  28
  31
  34
  37
  40
  43
  47
  50
  54
  57
  61
  65
  69
  73
Discount rate, %
 
  14.90
  15.65
  16.43
  17.25
  18.11
  19.02
  19.97
  20.97
  22.01
  23.11
  24.27
  25.48
  26.76
  28.10
  29.50
  30.98
  32.52
  34.15
  35.86
  37.65
  39.53
  41.51
  43.59
  45.77
  48.05
  50.46
  52.98
  55.63
  58.41
  61.33
PV of cash for distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  42.4
  37.2
  33.4
  30.8
  29.0
  27.9
  27.3
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2
  27.2

Five Oaks Investment Corp. focuses on investing, financing, and managing a portfolio of residential mortgage loans and mortgage-backed securities (MBS). It invests in agency and non-agency residential MBS, multi-family MBS, residential mortgage loans, mortgage servicing rights, and other mortgage-related investments. The company is qualified as a real estate investment trust (REIT) under the Internal Revenue Code. As a REIT, its net income would be exempt from federal taxation to the extent that it is distributed as dividends to shareholders. Five Oaks Investment Corp. was founded in 2012 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  Five Oaks Investment (OAKS)

Valuation Ratios
P/E Ratio -10.5
Price to Sales 0.9
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 41.9
Price to Free Cash Flow 41.9
Growth Rates
Sales Growth Rate -18.4%
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 0
Current Ratio NaN
LT Debt to Equity 943%
Total Debt to Equity 1509.9%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.1%
Ret/ On Assets - 3 Yr. Avg. 0.2%
Return On Total Capital -0.3%
Ret/ On T. Cap. - 3 Yr. Avg. -0.1%
Return On Equity -5%
Return On Equity - 3 Yr. Avg. -1.1%
Asset Turnover 0
Profitability Ratios
Gross Margin 25.8%
Gross Margin - 3 Yr. Avg. 30.7%
EBITDA Margin -2.2%
EBITDA Margin - 3 Yr. Avg. 7%
Operating Margin -8.6%
Oper. Margin - 3 Yr. Avg. -0.7%
Pre-Tax Margin -8.6%
Pre-Tax Margin - 3 Yr. Avg. -0.7%
Net Profit Margin -8.6%
Net Profit Margin - 3 Yr. Avg. -0.7%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio -412.5%

OAKS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OAKS stock intrinsic value calculation we used $114 million for the last fiscal year's total revenue generated by Five Oaks Investment. The default revenue input number comes from 2016 income statement of Five Oaks Investment. 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 OAKS 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 14.9%, whose default value for OAKS is calculated based on our internal credit rating of Five Oaks Investment, 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 Five Oaks Investment.
    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 OAKS stock the variable cost ratio is equal to 93.9%.

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 OAKS 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 Five Oaks Investment.

Corporate tax rate of 27% is the nominal tax rate for Five Oaks Investment. 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 OAKS 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 OAKS are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Five Oaks Investment 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 OAKS is equal to 50%. 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 - $177 million for Five Oaks Investment - 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 17.538 million for Five Oaks Investment 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 Five Oaks Investment at the current share price and the inputted number of shares is $0.1 billion.


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COMPANY NEWS

▶ Five Oaks posts 1Q profit   [May-10-17 06:02PM  Associated Press]
▶ Five Oaks posts 4Q profit   [05:00AM  Associated Press]
▶ Five Oaks Investment Corp. Announcements   [08:30AM  PR Newswire]
▶ 5 Small Caps With 1000%+ Analyst EPS Upgrades   [Sep-11  03:37PM  Benzinga]
Stock chart of OAKS Financial statements of OAKS Annual reports of OAKS
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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