Intrinsic value of Sigmatron International - SGMA

Previous Close

$8.15

  Intrinsic Value

$11.29

stock screener

  Rating & Target

buy

+39%

  Value-price divergence*

+65%

Previous close

$8.15

 
Intrinsic value

$11.29

 
Up/down potential

+39%

 
Rating

buy

 
Value-price divergence*

+65%

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

We calculate the intrinsic value of SGMA 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 0.0

 

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, %
  10.43
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  254
  267
  281
  295
  310
  325
  342
  359
  377
  396
  416
  437
  459
  482
  507
  532
  559
  587
  616
  647
  680
  714
  749
  787
  826
  868
  911
  957
  1,005
  1,055
  1,108
Variable operating expenses, $m
 
  245
  257
  270
  284
  298
  313
  329
  346
  363
  382
  400
  421
  442
  464
  487
  512
  537
  564
  593
  622
  654
  686
  721
  757
  795
  835
  876
  920
  966
  1,015
Fixed operating expenses, $m
 
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
  26
  27
  27
  28
  29
  29
  30
  31
  32
  32
  33
  34
  35
  36
Total operating expenses, $m
  250
  262
  275
  288
  303
  317
  333
  349
  367
  384
  404
  422
  444
  465
  488
  512
  537
  563
  591
  620
  650
  683
  715
  751
  788
  827
  867
  909
  954
  1,001
  1,051
Operating income, $m
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  22
  24
  25
  27
  29
  32
  34
  36
  39
  42
  44
  47
  51
  54
  58
EBITDA, $m
  9
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  46
  49
  53
  56
  60
Interest expense (income), $m
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
Earnings before tax, $m
  3
  4
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  23
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
Tax expense, $m
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
Net income, $m
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35

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
  137
  140
  147
  154
  162
  170
  179
  188
  198
  208
  218
  229
  240
  253
  265
  279
  293
  307
  323
  339
  356
  374
  392
  412
  433
  454
  477
  501
  526
  552
  580
Adjusted assets (=assets-cash), $m
  133
  140
  147
  154
  162
  170
  179
  188
  198
  208
  218
  229
  240
  253
  265
  279
  293
  307
  323
  339
  356
  374
  392
  412
  433
  454
  477
  501
  526
  552
  580
Revenue / Adjusted assets
  1.910
  1.907
  1.912
  1.916
  1.914
  1.912
  1.911
  1.910
  1.904
  1.904
  1.908
  1.908
  1.913
  1.905
  1.913
  1.907
  1.908
  1.912
  1.907
  1.909
  1.910
  1.909
  1.911
  1.910
  1.908
  1.912
  1.910
  1.910
  1.911
  1.911
  1.910
Average production assets, $m
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
Working capital, $m
  48
  48
  51
  53
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
  92
  96
  101
  106
  112
  117
  123
  129
  136
  142
  150
  157
  165
  173
  182
  191
  201
Total debt, $m
  28
  30
  34
  38
  42
  47
  52
  57
  62
  68
  74
  80
  87
  93
  101
  108
  116
  124
  133
  142
  152
  162
  172
  183
  195
  207
  220
  234
  248
  263
  278
Total liabilities, $m
  77
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  129
  136
  142
  150
  157
  165
  173
  182
  191
  201
  211
  221
  232
  244
  256
  269
  283
  297
  312
  327
Total equity, $m
  60
  61
  64
  67
  71
  74
  78
  82
  86
  90
  95
  100
  105
  110
  116
  121
  128
  134
  141
  148
  155
  163
  171
  180
  189
  198
  208
  218
  229
  241
  253
Total liabilities and equity, $m
  137
  140
  147
  154
  162
  170
  179
  188
  197
  207
  218
  229
  241
  252
  266
  278
  293
  307
  323
  339
  356
  374
  392
  412
  433
  454
  477
  501
  526
  553
  580
Debt-to-equity ratio
  0.467
  0.490
  0.530
  0.570
  0.600
  0.630
  0.670
  0.700
  0.720
  0.750
  0.780
  0.800
  0.830
  0.850
  0.870
  0.890
  0.910
  0.930
  0.950
  0.960
  0.980
  0.990
  1.010
  1.020
  1.030
  1.050
  1.060
  1.070
  1.080
  1.090
  1.100
Adjusted equity ratio
  0.421
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
Depreciation, amort., depletion, $m
  5
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
Funds from operations, $m
  17
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
  38
Change in working capital, $m
  4
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
Cash from operations, $m
  13
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  21
  23
  24
  26
  28
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
New CAPEX, $m
  -3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -3
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
Free cash flow, $m
  10
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  15
  16
  17
  18
  20
  21
  23
  25
Issuance/(repayment) of debt, $m
  -9
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -9
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
Total cash flow (excl. dividends), $m
  1
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  26
  27
  29
  31
  33
  36
  38
  40
Retained Cash Flow (-), $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Prev. year cash balance distribution, $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
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
 
  3
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  11
  12
  14
  15
  16
  17
  18
  20
  21
  23
  25
  26
  28
Discount rate, %
 
  5.30
  5.57
  5.84
  6.14
  6.44
  6.76
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.52
  9.99
  10.49
  11.02
  11.57
  12.15
  12.76
  13.39
  14.06
  14.77
  15.50
  16.28
  17.09
  17.95
  18.85
  19.79
  20.78
  21.82
PV of cash for distribution, $m
 
  3
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7

SigmaTron International, Inc. operates as an independent provider of electronic manufacturing services (EMS). Its EMS services include production of printed circuit board assemblies and completely assembled (box-build) electronic products. The company also offers automatic and manual assembly, and testing of products; material sourcing and procurement services; manufacturing and test engineering support services; design services; warehousing and shipment services; and assistance in obtaining product approval from governmental and other regulatory bodies. It primarily serves appliance, gaming, fitness, industrial electronics, medical/life sciences, semiconductor, telecommunications, and consumer electronics industries in the United States, Mexico, China, Vietnam, and Taiwan. The company markets its services through independent manufacturersÂ’ representative organizations. SigmaTron International, Inc. was founded in 1993 and is headquartered in Elk Grove Village, Illinois.

FINANCIAL RATIOS  of  Sigmatron International (SGMA)

Valuation Ratios
P/E Ratio 17
Price to Sales 0.1
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 2.6
Price to Free Cash Flow 3.4
Growth Rates
Sales Growth Rate 10.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate -15.6%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 43.3%
Total Debt to Equity 46.7%
Interest Coverage 4
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital 2.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.4%
Return On Equity 3.4%
Return On Equity - 3 Yr. Avg. 3.6%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 10.2%
Gross Margin - 3 Yr. Avg. 10.1%
EBITDA Margin 3.5%
EBITDA Margin - 3 Yr. Avg. 3.7%
Operating Margin 1.6%
Oper. Margin - 3 Yr. Avg. 1.3%
Pre-Tax Margin 1.2%
Pre-Tax Margin - 3 Yr. Avg. 1.1%
Net Profit Margin 0.8%
Net Profit Margin - 3 Yr. Avg. 0.9%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 27.8%
Payout Ratio 0%

SGMA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SGMA stock intrinsic value calculation we used $254 million for the last fiscal year's total revenue generated by Sigmatron International. The default revenue input number comes from 2016 income statement of Sigmatron International. 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 SGMA stock valuation model: a) initial revenue growth rate of 5.1% 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 5.3%, whose default value for SGMA is calculated based on our internal credit rating of Sigmatron International, 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 Sigmatron International.
    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 SGMA stock the variable cost ratio is equal to 91.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $17 million in the base year in the intrinsic value calculation for SGMA 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 Sigmatron International.

Corporate tax rate of 27% is the nominal tax rate for Sigmatron International. 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 SGMA 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 SGMA are equal to 2%.

Life of production assets of 10 years is the average useful life of capital assets used in Sigmatron International 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 SGMA is equal to 18.1%. 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 - $60 million for Sigmatron International - 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 3.976 million for Sigmatron International 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 Sigmatron International at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ 10-K for SigmaTron International, Inc.   [Jul-29  08:09PM  at Company Spotlight]
▶ 10-Q for SigmaTron International, Inc.   [May-04  08:12PM  at Company Spotlight]
▶ 10-Q for SigmaTron International, Inc.   [Dec-14  07:07PM  at Company Spotlight]
▶ SigmaTron - Small, Diverse And Ready For Global Growth   [Jun-03  04:23AM  at Seeking Alpha]
▶ Winning 14.77% on the Perfect Bull Stock   [Mar-17  10:30AM  at TheStreet]
Stock chart of SGMA Financial statements of SGMA
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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