Intrinsic value of SPS Commerce - SPSC

Previous Close

$50.24

  Intrinsic Value

$11.42

stock screener

  Rating & Target

str. sell

-77%

Previous close

$50.24

 
Intrinsic value

$11.42

 
Up/down potential

-77%

 
Rating

str. sell

We calculate the intrinsic value of SPSC 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 0.9

 

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, %
  21.38
  14.90
  13.91
  13.02
  12.22
  11.50
  10.85
  10.26
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.26
  7.04
  6.83
  6.65
  6.49
  6.34
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
Revenue, $m
  193
  222
  253
  285
  320
  357
  396
  437
  479
  523
  570
  618
  668
  720
  774
  830
  889
  950
  1,013
  1,078
  1,147
  1,218
  1,292
  1,369
  1,450
  1,534
  1,621
  1,713
  1,808
  1,908
  2,012
Variable operating expenses, $m
 
  212
  241
  271
  304
  338
  374
  412
  452
  493
  537
  576
  623
  672
  722
  775
  829
  886
  945
  1,006
  1,070
  1,136
  1,205
  1,278
  1,353
  1,431
  1,513
  1,598
  1,687
  1,780
  1,877
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
  186
  212
  241
  271
  304
  338
  374
  412
  452
  493
  537
  576
  623
  672
  722
  775
  829
  886
  945
  1,006
  1,070
  1,136
  1,205
  1,278
  1,353
  1,431
  1,513
  1,598
  1,687
  1,780
  1,877
Operating income, $m
  8
  10
  12
  14
  16
  19
  21
  24
  27
  30
  33
  41
  45
  48
  52
  56
  59
  64
  68
  72
  77
  81
  86
  92
  97
  103
  108
  115
  121
  128
  135
EBITDA, $m
  20
  21
  24
  27
  30
  33
  37
  41
  45
  49
  53
  58
  63
  67
  73
  78
  83
  89
  95
  101
  107
  114
  121
  128
  136
  144
  152
  160
  169
  179
  188
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
Earnings before tax, $m
  9
  10
  12
  14
  16
  18
  20
  22
  25
  27
  30
  38
  41
  44
  47
  50
  54
  57
  61
  65
  69
  73
  77
  82
  87
  91
  97
  102
  107
  113
  119
Tax expense, $m
  3
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  10
  11
  12
  13
  14
  15
  15
  16
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
Net income, $m
  6
  7
  9
  10
  11
  13
  15
  16
  18
  20
  22
  28
  30
  32
  34
  37
  39
  42
  45
  47
  50
  53
  56
  60
  63
  67
  70
  74
  78
  83
  87

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  139
  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
  298
  183
  208
  235
  264
  294
  326
  360
  395
  431
  469
  509
  550
  593
  638
  684
  732
  782
  834
  888
  945
  1,003
  1,064
  1,128
  1,194
  1,263
  1,335
  1,411
  1,489
  1,571
  1,657
Adjusted assets (=assets-cash), $m
  159
  183
  208
  235
  264
  294
  326
  360
  395
  431
  469
  509
  550
  593
  638
  684
  732
  782
  834
  888
  945
  1,003
  1,064
  1,128
  1,194
  1,263
  1,335
  1,411
  1,489
  1,571
  1,657
Revenue / Adjusted assets
  1.214
  1.213
  1.216
  1.213
  1.212
  1.214
  1.215
  1.214
  1.213
  1.213
  1.215
  1.214
  1.215
  1.214
  1.213
  1.213
  1.214
  1.215
  1.215
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
  1.215
  1.214
  1.214
  1.214
  1.215
  1.214
Average production assets, $m
  32
  37
  42
  47
  53
  59
  66
  72
  80
  87
  95
  103
  111
  120
  129
  138
  148
  158
  168
  179
  190
  202
  214
  227
  241
  255
  269
  284
  300
  317
  334
Working capital, $m
  154
  17
  20
  22
  25
  28
  31
  34
  37
  41
  44
  48
  52
  56
  60
  65
  69
  74
  79
  84
  89
  95
  101
  107
  113
  120
  126
  134
  141
  149
  157
Total debt, $m
  0
  7
  15
  23
  32
  42
  51
  62
  73
  84
  96
  108
  120
  134
  147
  162
  176
  192
  208
  225
  242
  260
  279
  298
  319
  340
  362
  385
  410
  435
  461
Total liabilities, $m
  49
  56
  64
  72
  81
  91
  100
  111
  122
  133
  145
  157
  169
  183
  196
  211
  225
  241
  257
  274
  291
  309
  328
  347
  368
  389
  411
  434
  459
  484
  510
Total equity, $m
  249
  126
  144
  163
  183
  204
  226
  249
  273
  298
  325
  352
  381
  410
  441
  473
  507
  541
  577
  615
  654
  694
  736
  780
  826
  874
  924
  976
  1,031
  1,087
  1,147
Total liabilities and equity, $m
  298
  182
  208
  235
  264
  295
  326
  360
  395
  431
  470
  509
  550
  593
  637
  684
  732
  782
  834
  889
  945
  1,003
  1,064
  1,127
  1,194
  1,263
  1,335
  1,410
  1,490
  1,571
  1,657
Debt-to-equity ratio
  0.000
  0.060
  0.100
  0.140
  0.180
  0.200
  0.230
  0.250
  0.270
  0.280
  0.290
  0.310
  0.320
  0.330
  0.330
  0.340
  0.350
  0.350
  0.360
  0.370
  0.370
  0.370
  0.380
  0.380
  0.390
  0.390
  0.390
  0.390
  0.400
  0.400
  0.400
Adjusted equity ratio
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  7
  9
  10
  11
  13
  15
  16
  18
  20
  22
  28
  30
  32
  34
  37
  39
  42
  45
  47
  50
  53
  56
  60
  63
  67
  70
  74
  78
  83
  87
Depreciation, amort., depletion, $m
  12
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  17
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
Funds from operations, $m
  14
  18
  20
  23
  25
  28
  30
  33
  36
  39
  42
  44
  48
  51
  55
  59
  63
  67
  72
  76
  81
  86
  91
  96
  102
  108
  114
  120
  127
  134
  141
Change in working capital, $m
  -5
  2
  2
  3
  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
Cash from operations, $m
  19
  16
  18
  20
  22
  25
  27
  30
  33
  36
  39
  41
  44
  47
  51
  55
  59
  63
  67
  71
  76
  80
  85
  90
  96
  101
  107
  113
  119
  126
  133
Maintenance CAPEX, $m
  0
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
New CAPEX, $m
  -8
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
Cash from investing activities, $m
  -34
  -10
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -35
  -38
  -40
  -43
  -45
  -48
  -50
  -53
  -56
  -58
  -62
  -65
  -68
Free cash flow, $m
  -15
  6
  7
  8
  9
  10
  11
  13
  14
  15
  17
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  46
  49
  51
  55
  58
  61
  65
Issuance/(repayment) of debt, $m
  0
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
Issuance/(repurchase) of shares, $m
  4
  9
  9
  9
  8
  8
  7
  7
  6
  5
  4
  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  
  10
  16
  17
  17
  17
  17
  17
  17
  17
  16
  16
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
Total cash flow (excl. dividends), $m
  -6
  22
  24
  25
  26
  27
  28
  30
  31
  32
  33
  29
  32
  34
  36
  39
  41
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  82
  86
  91
Retained Cash Flow (-), $m
  -27
  -16
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
Prev. year cash balance distribution, $m
 
  139
  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
 
  145
  6
  6
  6
  6
  6
  6
  7
  7
  7
  2
  3
  4
  6
  7
  8
  9
  11
  12
  14
  15
  17
  19
  20
  22
  24
  26
  28
  29
  32
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
 
  139
  6
  5
  5
  5
  5
  4
  4
  4
  4
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  97.6
  95.7
  94.0
  92.6
  91.5
  90.5
  89.7
  89.1
  88.6
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3
  88.3

SPS Commerce, Inc. is a provider of cloud-based supply chain management solutions, providing network-proven fulfillment, sourcing and item assortment management solutions, along with retail performance analytics. The Company provides its solutions through the SPS Commerce platform, a cloud-based product suite that manages the way suppliers, retailers, distributors and logistics firms orchestrate the sourcing, set up of new vendors and items, and fulfillment of products that customers buy from retailers and suppliers. The Fulfillment solution provides fulfillment automation and replaces or augments an organization's existing trading partner electronic communication infrastructure, enabling suppliers to have visibility into the journey of an order and comply with retailers' rule books and enabling the electronic exchange of information among various trading partners through various protocols. The Community Development solution provides communication programs based on its best practices.

FINANCIAL RATIOS  of  SPS Commerce (SPSC)

Valuation Ratios
P/E Ratio 143
Price to Sales 4.4
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 45.2
Price to Free Cash Flow 78
Growth Rates
Sales Growth Rate 21.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.1%
Cap. Spend. - 3 Yr. Gr. Rate 5.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.8
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.1%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital 2.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity 2.5%
Return On Equity - 3 Yr. Avg. 2.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 66.8%
Gross Margin - 3 Yr. Avg. 67.8%
EBITDA Margin 10.9%
EBITDA Margin - 3 Yr. Avg. 10.4%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 3.7%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 4.1%
Net Profit Margin 3.1%
Net Profit Margin - 3 Yr. Avg. 2.9%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 29%
Payout Ratio 0%

SPSC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SPSC stock intrinsic value calculation we used $193 million for the last fiscal year's total revenue generated by SPS Commerce. The default revenue input number comes from 2016 income statement of SPS Commerce. 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 SPSC stock valuation model: a) initial revenue growth rate of 14.9% 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 SPSC is calculated based on our internal credit rating of SPS Commerce, 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 SPS Commerce.
    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 SPSC stock the variable cost ratio is equal to 95.9%.

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 SPSC 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 SPS Commerce.

Corporate tax rate of 27% is the nominal tax rate for SPS Commerce. 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 SPSC 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 SPSC are equal to 16.6%.

Life of production assets of 6.2 years is the average useful life of capital assets used in SPS Commerce 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 SPSC is equal to 7.8%. 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 - $249 million for SPS Commerce - 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 17.256 million for SPS Commerce 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 SPS Commerce at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ SPS Commerce Announces Stock Repurchase Program   [Nov-02-17 04:05PM  GlobeNewswire]
▶ SPS Commerce tops 3Q profit forecasts   [Oct-26-17 06:48PM  Associated Press]
▶ Should You Be Concerned About SPS Commerce Incs (SPSC) Risks?   [Oct-02-17 02:42PM  Simply Wall St.]
▶ SPS Commerce Releases Integrated Fulfillment for Acumatica   [Aug-23-17 10:00AM  GlobeNewswire]
▶ SPS Commerce Reports Second Quarter 2017 Financial Results   [Jul-27-17 04:05PM  GlobeNewswire]
▶ ETFs with exposure to SPS Commerce, Inc. : July 11, 2017   [Jul-11-17 03:03PM  Capital Cube]
▶ ETFs with exposure to SPS Commerce, Inc. : June 27, 2017   [Jun-27-17 03:46PM  Capital Cube]
▶ ETFs with exposure to SPS Commerce, Inc. : April 28, 2017   [Apr-28-17 04:17PM  Capital Cube]
▶ SPS Commerce beats Street 1Q forecasts   [Apr-27-17 06:20PM  Associated Press]
▶ SPS Commerce beats Street 4Q forecasts   [06:23PM  Associated Press]
▶ More Retailers Get on Board With 'Drop Shipping' for E-Commerce   [Jan-26-17 02:20PM  The Wall Street Journal]
▶ More Retailers Get on Board With 'Drop Shipping' for E-Commerce   [02:20PM  at The Wall Street Journal]
▶ SPS Commerce tops Street 3Q forecasts   [Oct-27-16 07:05PM  AP]
Financial statements of SPSC
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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