Intrinsic value of Simulations Plus - SLP

Previous Close

$17.00

  Intrinsic Value

$9.35

stock screener

  Rating & Target

sell

-45%

  Value-price divergence*

0%

Previous close

$17.00

 
Intrinsic value

$9.35

 
Up/down potential

-45%

 
Rating

sell

 
Value-price divergence*

0%

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

We calculate the intrinsic value of SLP 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 0.3

 

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, %
  11.11
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  20
  23
  27
  31
  35
  39
  44
  49
  54
  60
  66
  71
  78
  84
  91
  98
  105
  113
  120
  129
  137
  146
  155
  164
  174
  185
  196
  207
  219
  231
  244
Variable operating expenses, $m
 
  12
  13
  15
  17
  19
  21
  24
  26
  29
  32
  34
  37
  40
  43
  46
  50
  53
  57
  61
  65
  69
  74
  78
  83
  88
  93
  98
  104
  110
  116
Fixed operating expenses, $m
 
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
Total operating expenses, $m
  13
  15
  16
  18
  20
  22
  24
  28
  30
  33
  36
  38
  41
  44
  47
  50
  54
  58
  62
  66
  70
  74
  79
  83
  88
  94
  99
  104
  110
  116
  122
Operating income, $m
  7
  9
  11
  12
  15
  17
  19
  22
  24
  27
  30
  34
  37
  40
  43
  47
  51
  55
  59
  63
  67
  71
  76
  81
  86
  91
  97
  103
  109
  115
  122
EBITDA, $m
  9
  11
  13
  15
  17
  20
  23
  26
  29
  32
  35
  38
  42
  46
  50
  54
  58
  62
  67
  72
  76
  82
  87
  92
  98
  104
  110
  117
  124
  131
  138
Interest expense (income), $m
  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
  2
  2
  2
  2
Earnings before tax, $m
  7
  9
  10
  12
  14
  17
  19
  22
  24
  27
  30
  33
  36
  40
  43
  46
  50
  54
  58
  62
  66
  70
  75
  80
  85
  90
  96
  101
  107
  113
  120
Tax expense, $m
  2
  2
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  31
  32
Net income, $m
  5
  6
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  26
  29
  31
  34
  37
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
  78
  83
  87

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  28
  23
  27
  31
  35
  39
  44
  49
  54
  60
  66
  71
  78
  84
  91
  98
  105
  113
  120
  129
  137
  146
  155
  164
  174
  185
  196
  207
  219
  231
  244
Adjusted assets (=assets-cash), $m
  20
  23
  27
  31
  35
  39
  44
  49
  54
  60
  66
  71
  78
  84
  91
  98
  105
  113
  120
  129
  137
  146
  155
  164
  174
  185
  196
  207
  219
  231
  244
Revenue / Adjusted assets
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
Average production assets, $m
  11
  13
  15
  17
  19
  22
  24
  27
  30
  33
  36
  39
  43
  46
  50
  54
  58
  62
  66
  71
  75
  80
  85
  90
  96
  102
  108
  114
  120
  127
  134
Working capital, $m
  11
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
Total debt, $m
  0
  1
  2
  3
  4
  5
  6
  7
  9
  10
  11
  13
  14
  16
  18
  19
  21
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  56
Total liabilities, $m
  5
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
  18
  19
  21
  23
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  46
  49
  52
  55
  58
  61
Total equity, $m
  23
  18
  20
  23
  26
  30
  33
  37
  41
  45
  49
  54
  58
  63
  68
  73
  79
  84
  90
  96
  103
  109
  116
  123
  131
  139
  147
  155
  164
  173
  183
Total liabilities and equity, $m
  28
  24
  27
  31
  35
  40
  44
  49
  55
  60
  65
  72
  77
  84
  91
  97
  105
  112
  120
  128
  137
  145
  155
  164
  175
  185
  196
  207
  219
  231
  244
Debt-to-equity ratio
  0.000
  0.050
  0.090
  0.120
  0.140
  0.160
  0.180
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.250
  0.260
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.290
  0.290
  0.290
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.310
Adjusted equity ratio
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  6
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  26
  29
  31
  34
  37
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
  78
  83
  87
Depreciation, amort., depletion, $m
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
Funds from operations, $m
  3
  8
  10
  12
  13
  15
  17
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  47
  50
  54
  58
  61
  65
  70
  74
  78
  83
  88
  93
  99
  104
Change in working capital, $m
  -2
  1
  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
Cash from operations, $m
  5
  8
  9
  11
  13
  15
  17
  19
  21
  23
  26
  28
  31
  34
  37
  40
  43
  46
  49
  53
  56
  60
  64
  68
  72
  77
  82
  86
  91
  97
  102
Maintenance CAPEX, $m
  0
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Cash from investing activities, $m
  -2
  -3
  -4
  -4
  -4
  -4
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -14
  -14
  -15
  -16
  -16
  -18
  -19
  -19
  -20
  -22
  -23
Free cash flow, $m
  3
  5
  6
  7
  8
  10
  11
  13
  15
  17
  19
  20
  23
  25
  27
  29
  32
  35
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  71
  75
  79
Issuance/(repayment) of debt, $m
  -1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
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  
  -1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
Total cash flow (excl. dividends), $m
  2
  6
  7
  8
  9
  11
  13
  14
  16
  18
  20
  22
  24
  26
  29
  31
  34
  36
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
  78
  83
Retained Cash Flow (-), $m
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Prev. year cash balance distribution, $m
 
  8
  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
  4
  5
  6
  8
  9
  11
  12
  14
  16
  17
  19
  22
  24
  26
  28
  31
  33
  36
  39
  41
  44
  48
  51
  54
  58
  61
  65
  69
  73
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
  4
  4
  5
  6
  7
  7
  8
  8
  8
  8
  8
  8
  8
  8
  7
  7
  6
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
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
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Simulations Plus, Inc. (Simulations Plus) develops and produces software for use in pharmaceutical research and for education, and provides consulting and contract research services to the pharmaceutical industry. The Company offers five software products for pharmaceutical research. ADMET (Absorption, Distribution, Metabolism, Excretion and Toxicity) Predictor is a computer program that takes molecular structures as inputs and predicts over 140 different properties for them at the rate of about 200,000 compounds per hour. MedChem Designer includes a small set of ADMET Predictor property predictions, allowing the chemist to modify molecular structures. MedChem Studio is a tool for medicinal and computational chemists for both data mining and for designing new drug-like molecules. DDDPlus simulates in-vitro laboratory experiments used to measure the rate of dissolution of the drug. GastroPlus simulates the absorption, pharmacokinetics, and pharmacodynamics of drugs.

FINANCIAL RATIOS  of  Simulations Plus (SLP)

Valuation Ratios
P/E Ratio 58.6
Price to Sales 14.6
Price to Book 12.7
Price to Tangible Book
Price to Cash Flow 58.6
Price to Free Cash Flow 97.6
Growth Rates
Sales Growth Rate 11.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.3%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.5
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 18.2%
Ret/ On Assets - 3 Yr. Avg. 17%
Return On Total Capital 23.3%
Ret/ On T. Cap. - 3 Yr. Avg. 22.3%
Return On Equity 23.3%
Return On Equity - 3 Yr. Avg. 22.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 75%
Gross Margin - 3 Yr. Avg. 81.2%
EBITDA Margin 45%
EBITDA Margin - 3 Yr. Avg. 48%
Operating Margin 35%
Oper. Margin - 3 Yr. Avg. 34.9%
Pre-Tax Margin 35%
Pre-Tax Margin - 3 Yr. Avg. 37.9%
Net Profit Margin 25%
Net Profit Margin - 3 Yr. Avg. 24.8%
Effective Tax Rate 28.6%
Eff/ Tax Rate - 3 Yr. Avg. 34%
Payout Ratio 60%

SLP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SLP stock intrinsic value calculation we used $20 million for the last fiscal year's total revenue generated by Simulations Plus. The default revenue input number comes from 2016 income statement of Simulations Plus. 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 SLP stock valuation model: a) initial revenue growth rate of 16.7% 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 SLP is calculated based on our internal credit rating of Simulations Plus, 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 Simulations Plus.
    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 SLP stock the variable cost ratio is equal to 50%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3 million in the base year in the intrinsic value calculation for SLP 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 Simulations Plus.

Corporate tax rate of 27% is the nominal tax rate for Simulations Plus. 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 SLP 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 SLP are equal to 55%.

Life of production assets of 8 years is the average useful life of capital assets used in Simulations Plus 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 SLP is equal to 15%. 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 - $23 million for Simulations Plus - 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 17.185 million for Simulations Plus 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 Simulations Plus at the current share price and the inputted number of shares is $0.3 billion.

RELATED COMPANIES Price Int.Val. Rating
MDSO Medidata Solut 80.72 67.29  hold
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QSII Quality System 15.62 4.28  str.sell

COMPANY NEWS

▶ At $16.7, Is It Time To Buy Simulations Plus Inc (SLP)?   [Oct-06-17 08:59AM  Simply Wall St.]
▶ Simulations Plus Sees Composite Rating Move Up To 96   [Sep-28-17 03:00AM  Investor's Business Daily]
▶ Simulations Plus Announces Senior Management Changes   [Aug-31-17 08:30AM  Business Wire]
▶ Simulations Plus Releases MembranePlus Version 2   [Aug-23-17 08:30AM  Business Wire]
▶ Company News for July 12, 2017   [10:25AM  Zacks]
▶ Simulations Plus posts 3Q profit   [Jul-10-17 11:55PM  Associated Press]
▶ Simulations Plus to Acquire DILIsym Services, Inc.   [May-01-17 08:30AM  Business Wire]
▶ Simulations Plus posts 2Q profit   [Apr-10-17 04:06PM  Associated Press]
▶ Simulations Plus Releases GastroPlus Version 9.5   [Apr-05-17 08:30AM  Business Wire]
▶ Simulations Plus Releases ADMET Predictor Version 8.1   [Jan-12-17 08:30AM  Business Wire]
▶ Simulations Plus posts 1Q profit   [04:07PM  Associated Press]
▶ Is Salem Media Group Inc (SALM) A Good Stock To Buy?   [Dec-17-16 03:40PM  at Insider Monkey]
▶ Simulations Plus Joins European SimInhale Consortium   [Sep-26-16 08:30AM  Business Wire]
▶ Simulations Plus Releases PKPlus Version 1.0   [Aug-25-16 08:30AM  Business Wire]
▶ Simulations Plus Releases ADMET Predictor Version 8.0   [Aug-01-16 08:30AM  Business Wire]
Financial statements of SLP
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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