Intrinsic value of Psychemedics - PMD

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$18.97

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$18.97

 
Intrinsic value

$1,217

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  39
  62
  96
  144
  209
  295
  406
  545
  715
  920
  1,162
  1,443
  1,765
  2,127
  2,531
  2,976
  3,461
  3,987
  4,552
  5,156
  5,796
  6,474
  7,187
  7,936
  8,719
  9,538
  10,392
  11,280
  12,205
  13,167
  14,166
Variable operating expenses, $m
 
  16
  25
  37
  54
  76
  104
  139
  183
  236
  298
  369
  452
  545
  648
  762
  886
  1,021
  1,165
  1,320
  1,484
  1,657
  1,840
  2,032
  2,232
  2,442
  2,660
  2,888
  3,125
  3,371
  3,627
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
  35
  45
  57
  75
  97
  126
  162
  206
  260
  322
  394
  478
  571
  675
  790
  914
  1,050
  1,195
  1,350
  1,515
  1,689
  1,873
  2,066
  2,266
  2,477
  2,696
  2,925
  3,163
  3,410
  3,667
Operating income, $m
  10
  27
  52
  87
  135
  198
  280
  383
  509
  661
  840
  1,049
  1,287
  1,556
  1,856
  2,186
  2,547
  2,938
  3,357
  3,805
  4,281
  4,785
  5,315
  5,871
  6,453
  7,061
  7,695
  8,356
  9,043
  9,757
  10,500
EBITDA, $m
  12
  30
  57
  94
  145
  213
  301
  411
  546
  708
  900
  1,123
  1,378
  1,665
  1,986
  2,339
  2,724
  3,142
  3,590
  4,070
  4,578
  5,116
  5,683
  6,277
  6,900
  7,550
  8,228
  8,933
  9,668
  10,432
  11,225
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  2
  3
  4
  5
  6
  8
  10
  12
  15
  18
  21
  25
  28
  32
  37
  41
  46
  51
  57
  62
  68
  74
  81
  87
  94
Earnings before tax, $m
  10
  27
  52
  86
  134
  197
  278
  380
  505
  656
  834
  1,041
  1,277
  1,544
  1,841
  2,168
  2,526
  2,913
  3,329
  3,773
  4,245
  4,743
  5,268
  5,819
  6,396
  6,999
  7,627
  8,281
  8,962
  9,670
  10,405
Tax expense, $m
  3
  7
  14
  23
  36
  53
  75
  103
  136
  177
  225
  281
  345
  417
  497
  585
  682
  786
  899
  1,019
  1,146
  1,281
  1,422
  1,571
  1,727
  1,890
  2,059
  2,236
  2,420
  2,611
  2,809
Net income, $m
  7
  20
  38
  63
  98
  144
  203
  277
  369
  479
  609
  760
  932
  1,127
  1,344
  1,583
  1,844
  2,126
  2,430
  2,754
  3,099
  3,463
  3,846
  4,248
  4,669
  5,109
  5,568
  6,045
  6,542
  7,059
  7,596

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
  34
  52
  78
  113
  159
  219
  293
  385
  496
  626
  777
  950
  1,145
  1,363
  1,602
  1,864
  2,147
  2,451
  2,776
  3,121
  3,486
  3,870
  4,273
  4,695
  5,136
  5,596
  6,075
  6,573
  7,090
  7,629
Adjusted assets (=assets-cash), $m
  21
  34
  52
  78
  113
  159
  219
  293
  385
  496
  626
  777
  950
  1,145
  1,363
  1,602
  1,864
  2,147
  2,451
  2,776
  3,121
  3,486
  3,870
  4,273
  4,695
  5,136
  5,596
  6,075
  6,573
  7,090
  7,629
Revenue / Adjusted assets
  1.857
  1.824
  1.846
  1.846
  1.850
  1.855
  1.854
  1.860
  1.857
  1.855
  1.856
  1.857
  1.858
  1.858
  1.857
  1.858
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
  1.857
Average production assets, $m
  13
  21
  32
  48
  70
  98
  135
  181
  238
  306
  387
  481
  588
  708
  843
  991
  1,153
  1,328
  1,516
  1,717
  1,930
  2,156
  2,393
  2,643
  2,904
  3,176
  3,460
  3,756
  4,064
  4,385
  4,717
Working capital, $m
  6
  5
  7
  11
  16
  23
  31
  42
  55
  71
  89
  111
  136
  164
  195
  229
  267
  307
  351
  397
  446
  498
  553
  611
  671
  734
  800
  869
  940
  1,014
  1,091
Total debt, $m
  3
  7
  14
  24
  37
  55
  77
  106
  141
  183
  232
  290
  356
  430
  513
  605
  704
  812
  928
  1,052
  1,183
  1,322
  1,469
  1,622
  1,783
  1,951
  2,126
  2,308
  2,498
  2,695
  2,900
Total liabilities, $m
  9
  13
  20
  30
  43
  61
  83
  112
  147
  189
  238
  296
  362
  436
  519
  611
  710
  818
  934
  1,058
  1,189
  1,328
  1,475
  1,628
  1,789
  1,957
  2,132
  2,314
  2,504
  2,701
  2,906
Total equity, $m
  16
  21
  32
  48
  70
  98
  135
  182
  238
  307
  387
  481
  588
  709
  844
  992
  1,154
  1,329
  1,517
  1,719
  1,932
  2,158
  2,396
  2,645
  2,906
  3,179
  3,464
  3,760
  4,068
  4,389
  4,722
Total liabilities and equity, $m
  25
  34
  52
  78
  113
  159
  218
  294
  385
  496
  625
  777
  950
  1,145
  1,363
  1,603
  1,864
  2,147
  2,451
  2,777
  3,121
  3,486
  3,871
  4,273
  4,695
  5,136
  5,596
  6,074
  6,572
  7,090
  7,628
Debt-to-equity ratio
  0.188
  0.330
  0.430
  0.490
  0.530
  0.550
  0.570
  0.580
  0.590
  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
  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
  20
  38
  63
  98
  144
  203
  277
  369
  479
  609
  760
  932
  1,127
  1,344
  1,583
  1,844
  2,126
  2,430
  2,754
  3,099
  3,463
  3,846
  4,248
  4,669
  5,109
  5,568
  6,045
  6,542
  7,059
  7,596
Depreciation, amort., depletion, $m
  2
  3
  5
  7
  11
  15
  21
  28
  37
  47
  60
  74
  90
  109
  130
  152
  177
  204
  233
  264
  297
  332
  368
  407
  447
  489
  532
  578
  625
  675
  726
Funds from operations, $m
  8
  23
  43
  70
  108
  159
  224
  305
  405
  526
  668
  834
  1,023
  1,236
  1,474
  1,735
  2,021
  2,331
  2,663
  3,018
  3,396
  3,794
  4,214
  4,655
  5,116
  5,598
  6,100
  6,623
  7,167
  7,733
  8,322
Change in working capital, $m
  -1
  2
  3
  4
  5
  7
  9
  11
  13
  16
  19
  22
  25
  28
  31
  34
  37
  40
  44
  46
  49
  52
  55
  58
  60
  63
  66
  68
  71
  74
  77
Cash from operations, $m
  9
  21
  40
  67
  103
  152
  215
  295
  392
  510
  650
  812
  998
  1,208
  1,442
  1,701
  1,984
  2,290
  2,620
  2,972
  3,346
  3,742
  4,159
  4,597
  5,056
  5,535
  6,034
  6,555
  7,096
  7,659
  8,245
Maintenance CAPEX, $m
  0
  -2
  -3
  -5
  -7
  -11
  -15
  -21
  -28
  -37
  -47
  -60
  -74
  -90
  -109
  -130
  -152
  -177
  -204
  -233
  -264
  -297
  -332
  -368
  -407
  -447
  -489
  -532
  -578
  -625
  -675
New CAPEX, $m
  -2
  -8
  -11
  -16
  -22
  -29
  -37
  -46
  -57
  -68
  -81
  -94
  -107
  -121
  -134
  -148
  -162
  -175
  -188
  -201
  -213
  -226
  -238
  -249
  -261
  -273
  -284
  -296
  -308
  -320
  -333
Cash from investing activities, $m
  -2
  -10
  -14
  -21
  -29
  -40
  -52
  -67
  -85
  -105
  -128
  -154
  -181
  -211
  -243
  -278
  -314
  -352
  -392
  -434
  -477
  -523
  -570
  -617
  -668
  -720
  -773
  -828
  -886
  -945
  -1,008
Free cash flow, $m
  7
  11
  25
  46
  74
  113
  163
  228
  308
  405
  522
  659
  817
  997
  1,199
  1,423
  1,670
  1,938
  2,227
  2,538
  2,869
  3,220
  3,590
  3,980
  4,388
  4,815
  5,261
  5,726
  6,210
  6,714
  7,237
Issuance/(repayment) of debt, $m
  -3
  5
  7
  10
  13
  18
  23
  28
  35
  42
  50
  58
  66
  74
  83
  91
  100
  108
  116
  124
  131
  139
  146
  154
  161
  168
  175
  182
  190
  197
  205
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
  5
  7
  10
  13
  18
  23
  28
  35
  42
  50
  58
  66
  74
  83
  91
  100
  108
  116
  124
  131
  139
  146
  154
  161
  168
  175
  182
  190
  197
  205
Total cash flow (excl. dividends), $m
  4
  16
  32
  56
  88
  130
  186
  256
  343
  447
  572
  717
  883
  1,071
  1,282
  1,515
  1,769
  2,046
  2,343
  2,662
  3,000
  3,359
  3,736
  4,133
  4,549
  4,983
  5,437
  5,909
  6,400
  6,911
  7,442
Retained Cash Flow (-), $m
  -4
  -8
  -11
  -16
  -22
  -29
  -37
  -46
  -57
  -68
  -81
  -94
  -107
  -121
  -135
  -148
  -162
  -175
  -188
  -201
  -214
  -226
  -238
  -250
  -261
  -273
  -285
  -296
  -308
  -321
  -333
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
  21
  40
  66
  102
  149
  210
  286
  379
  491
  623
  776
  951
  1,147
  1,366
  1,607
  1,870
  2,155
  2,460
  2,787
  3,133
  3,499
  3,884
  4,288
  4,710
  5,152
  5,612
  6,092
  6,591
  7,109
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
 
  11
  19
  35
  54
  79
  108
  142
  179
  218
  257
  296
  331
  361
  385
  401
  408
  407
  397
  379
  354
  324
  290
  255
  218
  183
  150
  120
  94
  72
  54
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 14.8
Price to Sales 2.7
Price to Book 6.5
Price to Tangible Book
Price to Cash Flow 11.5
Price to Free Cash Flow 14.8
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 60% 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 6.5 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 5.507 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.


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COMPANY NEWS

▶ Psychemedics posts 1Q profit   [Apr-25-17 05:33PM  Associated Press]
Stock chart of PMD Financial statements of PMD
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