Intrinsic value of Psychemedics - PMD

Previous Close

$26.54

  Intrinsic Value

$465.16

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+5000%

Previous close

$26.54

 
Intrinsic value

$465.16

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+5000%

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

We calculate the intrinsic value of PMD 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, %
  44.44
  42.90
  39.11
  35.70
  32.63
  29.87
  27.38
  25.14
  23.13
  21.31
  19.68
  18.21
  16.89
  15.70
  14.63
  13.67
  12.80
  12.02
  11.32
  10.69
  10.12
  9.61
  9.15
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.79
Revenue, $m
  39
  56
  78
  105
  140
  181
  231
  289
  356
  431
  516
  610
  714
  826
  946
  1,076
  1,214
  1,359
  1,513
  1,675
  1,845
  2,022
  2,207
  2,400
  2,600
  2,809
  3,026
  3,251
  3,485
  3,729
  3,981
Variable operating expenses, $m
 
  14
  20
  27
  36
  46
  59
  74
  91
  110
  132
  156
  183
  211
  242
  275
  311
  348
  387
  429
  472
  518
  565
  614
  666
  719
  775
  832
  892
  954
  1,019
Fixed operating expenses, $m
 
  19
  20
  20
  21
  21
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  34
  35
  36
  37
  38
  39
  40
Total operating expenses, $m
  29
  33
  40
  47
  57
  67
  81
  97
  114
  134
  156
  181
  209
  237
  269
  303
  339
  377
  417
  459
  503
  550
  598
  648
  700
  754
  811
  869
  930
  993
  1,059
Operating income, $m
  10
  22
  38
  58
  83
  113
  150
  192
  241
  297
  360
  429
  505
  588
  677
  773
  875
  983
  1,096
  1,216
  1,341
  1,472
  1,609
  1,752
  1,900
  2,054
  2,215
  2,382
  2,555
  2,735
  2,922
EBITDA, $m
  12
  24
  40
  61
  87
  119
  157
  202
  253
  312
  377
  450
  529
  616
  709
  809
  915
  1,028
  1,147
  1,272
  1,403
  1,540
  1,683
  1,832
  1,987
  2,148
  2,316
  2,490
  2,671
  2,859
  3,055
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  3
  3
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  22
  23
  25
  27
Earnings before tax, $m
  10
  22
  38
  57
  82
  113
  149
  191
  240
  295
  357
  426
  501
  583
  672
  766
  867
  974
  1,087
  1,205
  1,329
  1,459
  1,595
  1,736
  1,883
  2,036
  2,195
  2,360
  2,532
  2,710
  2,896
Tax expense, $m
  3
  6
  10
  16
  22
  30
  40
  52
  65
  80
  96
  115
  135
  157
  181
  207
  234
  263
  293
  325
  359
  394
  431
  469
  508
  550
  593
  637
  684
  732
  782
Net income, $m
  7
  16
  27
  42
  60
  82
  108
  139
  175
  215
  261
  311
  366
  426
  490
  559
  633
  711
  793
  880
  971
  1,065
  1,164
  1,267
  1,375
  1,486
  1,602
  1,723
  1,848
  1,979
  2,114

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  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
  25
  30
  42
  57
  75
  98
  124
  156
  192
  232
  278
  329
  384
  445
  510
  579
  654
  732
  815
  902
  993
  1,089
  1,188
  1,292
  1,400
  1,512
  1,629
  1,751
  1,877
  2,008
  2,144
Adjusted assets (=assets-cash), $m
  21
  30
  42
  57
  75
  98
  124
  156
  192
  232
  278
  329
  384
  445
  510
  579
  654
  732
  815
  902
  993
  1,089
  1,188
  1,292
  1,400
  1,512
  1,629
  1,751
  1,877
  2,008
  2,144
Revenue / Adjusted assets
  1.857
  1.867
  1.857
  1.842
  1.867
  1.847
  1.863
  1.853
  1.854
  1.858
  1.856
  1.854
  1.859
  1.856
  1.855
  1.858
  1.856
  1.857
  1.856
  1.857
  1.858
  1.857
  1.858
  1.858
  1.857
  1.858
  1.858
  1.857
  1.857
  1.857
  1.857
Average production assets, $m
  13
  19
  26
  35
  46
  60
  77
  96
  118
  144
  172
  203
  238
  275
  315
  358
  404
  453
  504
  558
  614
  673
  735
  799
  866
  935
  1,008
  1,083
  1,161
  1,242
  1,326
Working capital, $m
  6
  4
  6
  8
  11
  14
  18
  22
  27
  33
  40
  47
  55
  64
  73
  83
  93
  105
  117
  129
  142
  156
  170
  185
  200
  216
  233
  250
  268
  287
  307
Total debt, $m
  3
  5
  10
  16
  23
  31
  41
  53
  67
  83
  100
  119
  140
  163
  188
  215
  243
  273
  304
  338
  372
  409
  447
  486
  527
  570
  615
  661
  709
  759
  811
Total liabilities, $m
  9
  11
  16
  22
  29
  37
  47
  59
  73
  89
  106
  125
  146
  169
  194
  221
  249
  279
  310
  344
  378
  415
  453
  492
  533
  576
  621
  667
  715
  765
  817
Total equity, $m
  16
  19
  26
  35
  47
  60
  77
  96
  119
  144
  172
  203
  238
  275
  315
  359
  405
  453
  504
  558
  615
  674
  736
  800
  867
  936
  1,009
  1,084
  1,162
  1,243
  1,327
Total liabilities and equity, $m
  25
  30
  42
  57
  76
  97
  124
  155
  192
  233
  278
  328
  384
  444
  509
  580
  654
  732
  814
  902
  993
  1,089
  1,189
  1,292
  1,400
  1,512
  1,630
  1,751
  1,877
  2,008
  2,144
Debt-to-equity ratio
  0.188
  0.290
  0.380
  0.440
  0.490
  0.520
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.590
  0.590
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
  0.610
Adjusted equity ratio
  0.571
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7
  16
  27
  42
  60
  82
  108
  139
  175
  215
  261
  311
  366
  426
  490
  559
  633
  711
  793
  880
  971
  1,065
  1,164
  1,267
  1,375
  1,486
  1,602
  1,723
  1,848
  1,979
  2,114
Depreciation, amort., depletion, $m
  2
  2
  3
  4
  5
  6
  8
  10
  12
  14
  17
  20
  24
  27
  32
  36
  40
  45
  50
  56
  61
  67
  73
  80
  87
  94
  101
  108
  116
  124
  133
Funds from operations, $m
  8
  18
  30
  45
  65
  88
  116
  149
  187
  230
  278
  331
  390
  453
  522
  595
  673
  756
  844
  936
  1,032
  1,133
  1,238
  1,347
  1,461
  1,580
  1,703
  1,831
  1,964
  2,103
  2,247
Change in working capital, $m
  -1
  1
  2
  2
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
Cash from operations, $m
  9
  17
  28
  43
  62
  85
  112
  144
  182
  224
  271
  324
  382
  445
  512
  585
  663
  745
  832
  923
  1,019
  1,119
  1,223
  1,332
  1,446
  1,564
  1,686
  1,814
  1,946
  2,084
  2,227
Maintenance CAPEX, $m
  0
  -1
  -2
  -3
  -4
  -5
  -6
  -8
  -10
  -12
  -14
  -17
  -20
  -24
  -27
  -32
  -36
  -40
  -45
  -50
  -56
  -61
  -67
  -73
  -80
  -87
  -94
  -101
  -108
  -116
  -124
New CAPEX, $m
  -2
  -6
  -7
  -9
  -11
  -14
  -17
  -19
  -22
  -25
  -28
  -31
  -34
  -37
  -40
  -43
  -46
  -49
  -51
  -54
  -56
  -59
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -84
Cash from investing activities, $m
  -2
  -7
  -9
  -12
  -15
  -19
  -23
  -27
  -32
  -37
  -42
  -48
  -54
  -61
  -67
  -75
  -82
  -89
  -96
  -104
  -112
  -120
  -129
  -137
  -147
  -156
  -166
  -176
  -186
  -197
  -208
Free cash flow, $m
  7
  10
  19
  32
  47
  66
  90
  117
  150
  187
  229
  275
  327
  383
  445
  511
  581
  656
  735
  819
  907
  999
  1,095
  1,195
  1,299
  1,408
  1,521
  1,638
  1,760
  1,887
  2,019
Issuance/(repayment) of debt, $m
  -3
  3
  4
  6
  7
  9
  10
  12
  14
  16
  17
  19
  21
  23
  25
  27
  28
  30
  32
  33
  35
  36
  38
  40
  41
  43
  44
  46
  48
  50
  52
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  
  -3
  3
  4
  6
  7
  9
  10
  12
  14
  16
  17
  19
  21
  23
  25
  27
  28
  30
  32
  33
  35
  36
  38
  40
  41
  43
  44
  46
  48
  50
  52
Total cash flow (excl. dividends), $m
  4
  13
  24
  37
  54
  75
  100
  129
  163
  202
  246
  295
  348
  406
  470
  537
  609
  686
  767
  852
  941
  1,035
  1,133
  1,234
  1,340
  1,450
  1,565
  1,684
  1,808
  1,937
  2,071
Retained Cash Flow (-), $m
  -4
  -6
  -7
  -9
  -11
  -14
  -17
  -19
  -22
  -25
  -28
  -31
  -34
  -37
  -40
  -43
  -46
  -49
  -51
  -54
  -57
  -59
  -62
  -64
  -67
  -70
  -72
  -75
  -78
  -81
  -84
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
 
  11
  16
  28
  43
  61
  83
  110
  141
  177
  218
  263
  314
  369
  429
  494
  563
  637
  716
  798
  885
  976
  1,071
  1,170
  1,273
  1,381
  1,493
  1,609
  1,730
  1,856
  1,986
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
 
  10
  15
  24
  35
  47
  61
  74
  88
  102
  114
  125
  134
  140
  144
  145
  143
  139
  132
  123
  112
  101
  89
  77
  65
  54
  44
  35
  27
  20
  15
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
  100.0
  100.0
  100.0
  100.0
  100.0

Psychemedics Corporation provides testing services for the detection of drugs of abuse through the analysis of hair samples in the United States and internationally. The company’s tests provide quantitative information that can indicate the approximate amount of drug ingested, as well as historical data, which can show a pattern of individual drug use over a longer period of time. It offers screening and confirmation by mass spectrometry using industry-accepted practices for cocaine, marijuana, PCP, amphetamines, and opiates, including heroin, hydrocodone, hydromorphone, oxycodone, oxymorphone, and codeine. The company offers its services to employers for applicant and employee testing; treatment professionals, law enforcement agencies, school administrators, and parents concerned about their children’s drug use; and Fortune 500 companies and small to mid-size corporations. Psychemedics Corporation was founded in 1985 and is headquartered in Acton, Massachusetts.

FINANCIAL RATIOS  of  Psychemedics (PMD)

Valuation Ratios
P/E Ratio 20.7
Price to Sales 3.7
Price to Book 9.1
Price to Tangible Book
Price to Cash Flow 16.1
Price to Free Cash Flow 20.7
Growth Rates
Sales Growth Rate 44.4%
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 4
Current Ratio 0
LT Debt to Equity 12.5%
Total Debt to Equity 18.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 29.8%
Ret/ On Assets - 3 Yr. Avg. 17.7%
Return On Total Capital 37.8%
Ret/ On T. Cap. - 3 Yr. Avg. 22.7%
Return On Equity 50%
Return On Equity - 3 Yr. Avg. 30%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 53.8%
Gross Margin - 3 Yr. Avg. 51.2%
EBITDA Margin 30.8%
EBITDA Margin - 3 Yr. Avg. 20.9%
Operating Margin 25.6%
Oper. Margin - 3 Yr. Avg. 14.4%
Pre-Tax Margin 25.6%
Pre-Tax Margin - 3 Yr. Avg. 15.5%
Net Profit Margin 17.9%
Net Profit Margin - 3 Yr. Avg. 11.9%
Effective Tax Rate 30%
Eff/ Tax Rate - 3 Yr. Avg. -10%
Payout Ratio 42.9%

PMD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PMD stock intrinsic value calculation we used $39 million for the last fiscal year's total revenue generated by Psychemedics. The default revenue input number comes from 2016 income statement of Psychemedics. 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 PMD stock valuation model: a) initial revenue growth rate of 42.9% 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 PMD is calculated based on our internal credit rating of Psychemedics, 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 Psychemedics.
    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 PMD stock the variable cost ratio is equal to 25.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $19 million in the base year in the intrinsic value calculation for PMD 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 Psychemedics.

Corporate tax rate of 27% is the nominal tax rate for Psychemedics. 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 PMD 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 PMD are equal to 33.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Psychemedics 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 PMD is equal to 7.7%. 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 - $16 million for Psychemedics - 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 5.301 million for Psychemedics 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 Psychemedics at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
DGX Quest Diagnost 108.18 116.11  hold
LH Laboratory of 156.93 132.21  hold
ENZ Enzo Biochem 11.17 1.29  str.sell
NEO NeoGenomics 9.25 1.26  str.sell
CBMX CombiMatrix 5.90 90.88  str.buy
RDNT Radnet 7.80 5.98  sell

COMPANY NEWS

▶ ETFs with exposure to Psychemedics Corp. : June 12, 2017   [Jun-12-17 02:21PM  Capital Cube]
▶ ETFs with exposure to Psychemedics Corp. : May 30, 2017   [May-30-17 12:39PM  Capital Cube]
▶ ETFs with exposure to Psychemedics Corp. : May 19, 2017   [May-19-17 02:06PM  Capital Cube]
▶ Psychemedics posts 1Q profit   [Apr-25-17 05:33PM  Associated Press]
Stock chart of PMD Financial statements of PMD Annual reports of PMD
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.