Intrinsic value of Sharps Compliance - SMED

Previous Close

$5.67

  Intrinsic Value

$0.38

stock screener

  Rating & Target

str. sell

-93%

  Value-price divergence*

-5%

Previous close

$5.67

 
Intrinsic value

$0.38

 
Up/down potential

-93%

 
Rating

str. sell

 
Value-price divergence*

-5%

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

We calculate the intrinsic value of SMED 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, %
  6.45
  28.60
  26.24
  24.12
  22.20
  20.48
  18.94
  17.54
  16.29
  15.16
  14.14
  13.23
  12.41
  11.67
  11.00
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.24
  6.11
Revenue, $m
  33
  42
  54
  66
  81
  98
  116
  137
  159
  183
  209
  237
  266
  297
  330
  364
  400
  438
  477
  518
  560
  604
  650
  698
  747
  798
  852
  907
  965
  1,025
  1,088
Variable operating expenses, $m
 
  41
  52
  64
  79
  95
  113
  132
  154
  177
  202
  229
  257
  288
  319
  352
  387
  423
  461
  501
  542
  584
  628
  674
  722
  772
  824
  877
  933
  992
  1,052
Fixed operating expenses, $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
Total operating expenses, $m
  33
  41
  52
  64
  79
  95
  113
  132
  154
  177
  202
  229
  257
  288
  319
  352
  387
  423
  461
  501
  542
  584
  628
  674
  722
  772
  824
  877
  933
  992
  1,052
Operating income, $m
  0
  1
  2
  2
  3
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  36
EBITDA, $m
  1
  2
  3
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  15
  16
  18
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
Earnings before tax, $m
  0
  1
  2
  2
  2
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  20
  22
  23
  25
  26
  28
  30
Tax expense, $m
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
Net income, $m
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  12
  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
  30
  23
  29
  36
  44
  53
  64
  75
  87
  100
  114
  129
  145
  162
  180
  199
  218
  239
  260
  282
  306
  330
  355
  381
  408
  436
  465
  495
  527
  559
  594
Adjusted assets (=assets-cash), $m
  18
  23
  29
  36
  44
  53
  64
  75
  87
  100
  114
  129
  145
  162
  180
  199
  218
  239
  260
  282
  306
  330
  355
  381
  408
  436
  465
  495
  527
  559
  594
Revenue / Adjusted assets
  1.833
  1.826
  1.862
  1.833
  1.841
  1.849
  1.813
  1.827
  1.828
  1.830
  1.833
  1.837
  1.834
  1.833
  1.833
  1.829
  1.835
  1.833
  1.835
  1.837
  1.830
  1.830
  1.831
  1.832
  1.831
  1.830
  1.832
  1.832
  1.831
  1.834
  1.832
Average production assets, $m
  6
  7
  9
  11
  14
  16
  19
  23
  27
  31
  35
  40
  44
  50
  55
  61
  67
  73
  80
  86
  94
  101
  109
  116
  125
  133
  142
  152
  161
  171
  182
Working capital, $m
  17
  6
  8
  10
  12
  15
  18
  21
  24
  28
  32
  36
  40
  45
  50
  55
  61
  67
  72
  79
  85
  92
  99
  106
  114
  121
  129
  138
  147
  156
  165
Total debt, $m
  0
  2
  4
  6
  9
  12
  15
  19
  23
  27
  32
  37
  42
  48
  54
  60
  67
  74
  81
  88
  96
  104
  112
  121
  130
  139
  149
  159
  169
  180
  192
Total liabilities, $m
  6
  8
  10
  12
  15
  18
  21
  25
  29
  33
  38
  43
  48
  54
  60
  66
  73
  80
  87
  94
  102
  110
  118
  127
  136
  145
  155
  165
  175
  186
  198
Total equity, $m
  24
  15
  19
  24
  30
  36
  42
  50
  58
  67
  76
  86
  97
  108
  120
  133
  146
  159
  174
  188
  204
  220
  236
  254
  272
  291
  310
  330
  351
  373
  396
Total liabilities and equity, $m
  30
  23
  29
  36
  45
  54
  63
  75
  87
  100
  114
  129
  145
  162
  180
  199
  219
  239
  261
  282
  306
  330
  354
  381
  408
  436
  465
  495
  526
  559
  594
Debt-to-equity ratio
  0.000
  0.110
  0.190
  0.250
  0.300
  0.330
  0.360
  0.380
  0.400
  0.410
  0.420
  0.430
  0.440
  0.440
  0.450
  0.450
  0.460
  0.460
  0.460
  0.470
  0.470
  0.470
  0.470
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
Adjusted equity ratio
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667
  0.667

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
Funds from operations, $m
  1
  2
  2
  3
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  38
  40
Change in working capital, $m
  0
  1
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
Cash from operations, $m
  1
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  17
  18
  20
  21
  23
  25
  27
  28
  30
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
Cash from investing activities, $m
  -3
  -3
  -3
  -3
  -3
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
Free cash flow, $m
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -2
  -2
  -2
  -2
  -1
  -1
  0
  0
  0
  1
  1
  2
  2
  3
Issuance/(repayment) of debt, $m
  0
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
Issuance/(repurchase) of shares, $m
  0
  2
  3
  3
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  4
  4
  4
  4
  3
  3
  3
  2
  2
  2
  2
  1
Cash from financing (excl. dividends), $m  
  0
  4
  5
  5
  7
  7
  7
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  12
  11
  12
  12
  12
  12
  12
  12
  12
  12
  13
  13
  12
Total cash flow (excl. dividends), $m
  -3
  2
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
Retained Cash Flow (-), $m
  0
  -3
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
Prev. year cash balance distribution, $m
 
  12
  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
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
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
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  94.6
  90.0
  86.0
  82.6
  79.6
  77.0
  74.8
  72.8
  71.1
  69.7
  68.4
  67.2
  66.3
  65.4
  64.6
  64.0
  63.4
  62.9
  62.5
  62.1
  61.8
  61.5
  61.2
  61.0
  60.9
  60.7
  60.6
  60.5
  60.4
  60.4

Sharps Compliance Corp. provides medical, pharmaceutical, and hazardous waste management services in the United States. It offers Sharps Recovery System for the containment, transportation, treatment, and tracking of medical waste and used healthcare materials generated outside the hospital and health care facility settings; TakeAway Medication Recovery System, a solution that facilitates the proper disposal of unused medications; MedSafe, a solution for the safe collection, transportation, and proper disposal of unwanted and expired prescription medications; and ComplianceTRAC, a Web-based compliance and training program. The company also provides Route-Based Pickup Service, a waste management service, which offers medical and hazardous waste pick-up services; and Universal Waste Shipback Systems, a solution for the collection, transportation, and recycling of light bulbs, batteries, and other mercury containing devices. In addition, it offers other solutions, such as TakeAway Environmental Return System, SharpsTracer, Sharps Secure, Needle Disposal System, Complete Needle Collection and Disposal System, Pitch-It IV Poles, Trip LesSystem, Sharps Pump and Asset Return System, and Spill Kit and Recovery System, as well as Sharps MWMS, a medical waste management system. The company serves customers in home health care, retail clinics and immunizing pharmacies, pharmaceutical manufacturers, professional offices, assisted living and long-term care facilities, government, consumers, commercial, and agriculture markets, as well as distributors. Sharps Compliance Corp. was founded in 1992 and is based in Houston, Texas.

FINANCIAL RATIOS  of  Sharps Compliance (SMED)

Valuation Ratios
P/E Ratio 0
Price to Sales 2.7
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 87.5
Price to Free Cash Flow -87.5
Growth Rates
Sales Growth Rate 6.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 2.5%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 3%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 3%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 33.3%
Gross Margin - 3 Yr. Avg. 34.1%
EBITDA Margin 3%
EBITDA Margin - 3 Yr. Avg. 5.6%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. 2.3%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 2.3%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 2.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

SMED stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SMED stock intrinsic value calculation we used $33 million for the last fiscal year's total revenue generated by Sharps Compliance. The default revenue input number comes from 2016 income statement of Sharps Compliance. 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 SMED stock valuation model: a) initial revenue growth rate of 28.6% 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 SMED is calculated based on our internal credit rating of Sharps Compliance, 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 Sharps Compliance.
    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 SMED stock the variable cost ratio is equal to 97%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SMED 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 Sharps Compliance.

Corporate tax rate of 27% is the nominal tax rate for Sharps Compliance. 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 SMED 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 SMED are equal to 16.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Sharps Compliance 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 SMED is equal to 15.2%. 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 - $24 million for Sharps Compliance - 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 15.346 million for Sharps Compliance 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 Sharps Compliance at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Sharps Compliance misses Street 4Q forecasts   [Aug-10-17 11:52PM  Associated Press]
▶ New Strong Sell Stocks for June 26th   [Jun-26-17 09:32AM  Zacks]
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▶ New Strong Sell Stocks for May 26th   [May-26-17 09:23AM  Zacks]
▶ Sharps Compliance reports 3Q loss   [Apr-26-17 07:52AM  Associated Press]
▶ Gabelli & Companys Waste & Environmental Services Symposium   [Feb-15-17 07:00AM  Business Wire]
▶ Sharps Compliance reports 2Q loss   [07:03AM  Associated Press]
▶ Sharps Compliance Corp. Launches TakeAway Recycle System   [Apr-19-16 08:30AM  GlobeNewswire]
▶ Gabelli & Companys Waste & Environmental Services Symposium   [Feb-29-16 10:03AM  Business Wire]
▶ Gabelli & Companys Waste & Environmental Services Symposium   [Feb-24-16 07:30AM  Business Wire]
▶ The Top 5 Small Cap Healthcare Stocks for 2016 (SMED, SAGE)   [Jan-25-16 09:08AM  at Investopedia]
Stock chart of SMED Financial statements of SMED
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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