Intrinsic value of Five Oaks Investment - OAKS

Previous Close

$4.21

  Intrinsic Value

$1.60

stock screener

  Rating & Target

str. sell

-62%

Previous close

$4.21

 
Intrinsic value

$1.60

 
Up/down potential

-62%

 
Rating

str. sell

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

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, %
  -25.22
  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
  86
  88
  90
  92
  95
  98
  101
  104
  108
  112
  116
  121
  126
  131
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
  269
  282
Variable operating expenses, $m
 
  63
  65
  66
  68
  70
  73
  75
  78
  81
  84
  87
  91
  94
  98
  103
  107
  112
  117
  122
  128
  134
  140
  146
  153
  161
  168
  176
  185
  194
  203
Fixed operating expenses, $m
 
  34
  35
  36
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  47
  48
  49
  50
  51
  53
  54
  55
  57
  58
  60
  61
  63
  64
  66
  68
  69
Total operating expenses, $m
  94
  97
  100
  102
  104
  107
  111
  114
  118
  122
  126
  130
  135
  139
  145
  151
  156
  162
  168
  175
  182
  189
  197
  204
  213
  222
  231
  240
  251
  262
  272
Operating income, $m
  -8
  -9
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -9
  -9
  -9
  -8
  -8
  -7
  -6
  -6
  -5
  -4
  -3
  -2
  0
  1
  2
  4
  6
  8
  9
EBITDA, $m
  -8
  -9
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -9
  -9
  -9
  -8
  -8
  -7
  -6
  -6
  -5
  -4
  -3
  -2
  0
  1
  2
  4
  6
  8
  9
Interest expense (income), $m
  6
  74
  72
  74
  76
  78
  80
  83
  86
  89
  92
  96
  100
  104
  108
  113
  117
  123
  128
  134
  140
  146
  153
  160
  168
  176
  184
  193
  202
  212
  223
Earnings before tax, $m
  -8
  -83
  -82
  -84
  -86
  -88
  -91
  -93
  -96
  -99
  -102
  -105
  -109
  -113
  -117
  -121
  -125
  -130
  -134
  -139
  -145
  -150
  -156
  -162
  -168
  -175
  -182
  -189
  -197
  -205
  -213
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
  -83
  -82
  -84
  -86
  -88
  -91
  -93
  -96
  -99
  -102
  -105
  -109
  -113
  -117
  -121
  -125
  -130
  -134
  -139
  -145
  -150
  -156
  -162
  -168
  -175
  -182
  -189
  -197
  -205
  -213

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
  2,308
  2,362
  2,422
  2,490
  2,566
  2,649
  2,739
  2,837
  2,942
  3,055
  3,175
  3,304
  3,441
  3,587
  3,742
  3,906
  4,080
  4,263
  4,457
  4,662
  4,878
  5,106
  5,346
  5,599
  5,866
  6,147
  6,442
  6,753
  7,080
  7,424
Adjusted assets (=assets-cash), $m
  2,272
  2,308
  2,362
  2,422
  2,490
  2,566
  2,649
  2,739
  2,837
  2,942
  3,055
  3,175
  3,304
  3,441
  3,587
  3,742
  3,906
  4,080
  4,263
  4,457
  4,662
  4,878
  5,106
  5,346
  5,599
  5,866
  6,147
  6,442
  6,753
  7,080
  7,424
Revenue / Adjusted assets
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
  0.038
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
  44
  45
  46
  47
  49
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
  135
  141
Total debt, $m
  2,144
  2,064
  2,111
  2,166
  2,227
  2,295
  2,370
  2,451
  2,539
  2,634
  2,735
  2,844
  2,960
  3,083
  3,215
  3,354
  3,501
  3,658
  3,823
  3,997
  4,182
  4,376
  4,581
  4,798
  5,025
  5,265
  5,518
  5,784
  6,063
  6,358
  6,667
Total liabilities, $m
  2,157
  2,078
  2,125
  2,180
  2,241
  2,309
  2,384
  2,465
  2,553
  2,648
  2,749
  2,858
  2,974
  3,097
  3,229
  3,368
  3,515
  3,672
  3,837
  4,011
  4,196
  4,390
  4,595
  4,812
  5,039
  5,279
  5,532
  5,798
  6,077
  6,372
  6,681
Total equity, $m
  142
  231
  236
  242
  249
  257
  265
  274
  284
  294
  305
  318
  330
  344
  359
  374
  391
  408
  426
  446
  466
  488
  511
  535
  560
  587
  615
  644
  675
  708
  742
Total liabilities and equity, $m
  2,299
  2,309
  2,361
  2,422
  2,490
  2,566
  2,649
  2,739
  2,837
  2,942
  3,054
  3,176
  3,304
  3,441
  3,588
  3,742
  3,906
  4,080
  4,263
  4,457
  4,662
  4,878
  5,106
  5,347
  5,599
  5,866
  6,147
  6,442
  6,752
  7,080
  7,423
Debt-to-equity ratio
  15.099
  8.940
  8.940
  8.940
  8.940
  8.950
  8.950
  8.950
  8.950
  8.950
  8.950
  8.960
  8.960
  8.960
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  8.970
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
  8.980
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
  -83
  -82
  -84
  -86
  -88
  -91
  -93
  -96
  -99
  -102
  -105
  -109
  -113
  -117
  -121
  -125
  -130
  -134
  -139
  -145
  -150
  -156
  -162
  -168
  -175
  -182
  -189
  -197
  -205
  -213
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
  -83
  -82
  -84
  -86
  -88
  -91
  -93
  -96
  -99
  -102
  -105
  -109
  -113
  -117
  -121
  -125
  -130
  -134
  -139
  -145
  -150
  -156
  -162
  -168
  -175
  -182
  -189
  -197
  -205
  -213
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Cash from operations, $m
  2
  -84
  -83
  -85
  -87
  -90
  -92
  -95
  -98
  -101
  -104
  -108
  -111
  -115
  -119
  -124
  -128
  -133
  -138
  -143
  -148
  -154
  -160
  -166
  -173
  -180
  -187
  -195
  -203
  -211
  -220
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
  -84
  -83
  -85
  -87
  -90
  -92
  -95
  -98
  -101
  -104
  -108
  -111
  -115
  -119
  -124
  -128
  -133
  -138
  -143
  -148
  -154
  -160
  -166
  -173
  -180
  -187
  -195
  -203
  -211
  -220
Issuance/(repayment) of debt, $m
  236
  -52
  48
  55
  61
  68
  75
  81
  88
  95
  102
  109
  116
  123
  131
  139
  148
  156
  165
  175
  184
  194
  205
  216
  228
  240
  253
  266
  280
  294
  310
Issuance/(repurchase) of shares, $m
  15
  172
  87
  90
  93
  96
  99
  102
  106
  109
  113
  117
  122
  126
  131
  136
  141
  147
  153
  159
  165
  172
  179
  186
  194
  202
  210
  219
  228
  237
  247
Cash from financing (excl. dividends), $m  
  251
  120
  135
  145
  154
  164
  174
  183
  194
  204
  215
  226
  238
  249
  262
  275
  289
  303
  318
  334
  349
  366
  384
  402
  422
  442
  463
  485
  508
  531
  557
Total cash flow (excl. dividends), $m
  34
  36
  52
  60
  67
  74
  81
  88
  96
  103
  111
  118
  126
  135
  143
  152
  161
  170
  180
  190
  201
  212
  224
  236
  248
  262
  275
  290
  305
  321
  337
Retained Cash Flow (-), $m
  35
  -172
  -87
  -90
  -93
  -96
  -99
  -102
  -106
  -109
  -113
  -117
  -122
  -126
  -131
  -136
  -141
  -147
  -153
  -159
  -165
  -172
  -179
  -186
  -194
  -202
  -210
  -219
  -228
  -237
  -247
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
 
  -137
  -35
  -30
  -26
  -22
  -18
  -14
  -10
  -6
  -3
  1
  5
  8
  12
  16
  20
  23
  27
  32
  36
  40
  45
  50
  55
  60
  65
  71
  77
  83
  90
Discount rate, %
 
  15.00
  15.75
  16.54
  17.36
  18.23
  19.14
  20.10
  21.11
  22.16
  23.27
  24.43
  25.66
  26.94
  28.28
  29.70
  31.18
  32.74
  34.38
  36.10
  37.90
  39.80
  41.79
  43.88
  46.07
  48.38
  50.80
  53.34
  56.00
  58.80
  61.74
PV of cash for distribution, $m
 
  -119
  -26
  -19
  -14
  -9
  -6
  -4
  -2
  -1
  0
  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
  36.6
  23.8
  15.4
  10.0
  6.4
  4.1
  2.7
  1.7
  1.1
  0.7
  0.5
  0.3
  0.2
  0.1
  0.1
  0.1
  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

Five Oaks Investment Corp. is a real estate investment trust. The Company is focused on investing on a leveraged basis in mortgage and other real estate-related assets, particularly residential mortgage loans and mortgage-backed securities (MBS). The Company invests in various assets, such as Agency residential MBS (RMBS); securitizations backed by multi-family mortgage loans, or Multi-Family MBS; residential mortgage loans and other mortgage-related investments, including mortgage servicing rights (MSRs), and Non-Agency RMBS. The Company finances its investments in Agency RMBS, Multi-Family MBS, residential mortgage loans and Non-Agency RMBS primarily through short-term borrowings structured as repurchase agreements. The Company is externally managed and advised by Oak Circle Capital Partners LLC.

FINANCIAL RATIOS  of  Five Oaks Investment (OAKS)

Valuation Ratios
P/E Ratio -9.2
Price to Sales 0.9
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 36.9
Price to Free Cash Flow 36.9
Growth Rates
Sales Growth Rate -25.2%
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 18.6%
Gross Margin - 3 Yr. Avg. 29.4%
EBITDA Margin -2.3%
EBITDA Margin - 3 Yr. Avg. 6.7%
Operating Margin -9.3%
Oper. Margin - 3 Yr. Avg. -1%
Pre-Tax Margin -9.3%
Pre-Tax Margin - 3 Yr. Avg. -1%
Net Profit Margin -9.3%
Net Profit Margin - 3 Yr. Avg. -1%
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 $86 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 15%, 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 72.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $33 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 - $142 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 22.138 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 reports 3Q loss   [Nov-06-17 06:17PM  Associated Press]
▶ Should You Buy Five Oaks Investment Corp (OAKS) At $4.19?   [Sep-10-17 06:08PM  Simply Wall St.]
▶ Five Oaks reports 2Q loss   [Aug-07-17 07:35PM  Associated Press]
▶ 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]
Financial statements 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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