Intrinsic value of SPS Commerce - SPSC

Previous Close

$59.45

  Intrinsic Value

$11.87

stock screener

  Rating & Target

str. sell

-80%

  Value-price divergence*

-64%

Previous close

$59.45

 
Intrinsic value

$11.87

 
Up/down potential

-80%

 
Rating

str. sell

 
Value-price divergence*

-64%

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

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 1.0

 

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, %
  21.38
  13.00
  12.20
  11.48
  10.83
  10.25
  9.72
  9.25
  8.83
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
Revenue, $m
  193
  218
  245
  273
  302
  333
  366
  400
  435
  472
  510
  549
  591
  634
  678
  724
  773
  823
  875
  929
  986
  1,044
  1,106
  1,170
  1,237
  1,306
  1,379
  1,455
  1,535
  1,618
  1,705
Variable operating expenses, $m
 
  208
  233
  260
  287
  316
  346
  378
  411
  445
  481
  513
  551
  591
  633
  676
  721
  768
  816
  867
  920
  975
  1,032
  1,092
  1,154
  1,219
  1,287
  1,358
  1,432
  1,510
  1,591
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
  208
  233
  260
  287
  316
  346
  378
  411
  445
  481
  513
  551
  591
  633
  676
  721
  768
  816
  867
  920
  975
  1,032
  1,092
  1,154
  1,219
  1,287
  1,358
  1,432
  1,510
  1,591
Operating income, $m
  8
  10
  11
  13
  15
  17
  19
  22
  24
  27
  29
  37
  40
  42
  45
  48
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
  92
  97
  103
  108
  114
EBITDA, $m
  20
  18
  20
  23
  25
  28
  31
  33
  36
  39
  43
  46
  49
  53
  57
  60
  65
  69
  73
  78
  82
  87
  92
  98
  103
  109
  115
  122
  128
  135
  142
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  2
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
Earnings before tax, $m
  9
  10
  11
  13
  15
  16
  18
  20
  22
  24
  27
  34
  36
  39
  41
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  82
  87
  91
  96
  101
Tax expense, $m
  3
  3
  3
  3
  4
  4
  5
  5
  6
  7
  7
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
Net income, $m
  6
  7
  8
  9
  11
  12
  13
  15
  16
  18
  19
  25
  27
  28
  30
  32
  34
  36
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  67
  70
  74

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
  180
  202
  225
  249
  275
  301
  329
  358
  388
  420
  453
  487
  522
  559
  597
  636
  678
  721
  765
  812
  860
  911
  964
  1,019
  1,076
  1,136
  1,199
  1,264
  1,333
  1,404
Adjusted assets (=assets-cash), $m
  159
  180
  202
  225
  249
  275
  301
  329
  358
  388
  420
  453
  487
  522
  559
  597
  636
  678
  721
  765
  812
  860
  911
  964
  1,019
  1,076
  1,136
  1,199
  1,264
  1,333
  1,404
Revenue / Adjusted assets
  1.214
  1.211
  1.213
  1.213
  1.213
  1.211
  1.216
  1.216
  1.215
  1.216
  1.214
  1.212
  1.214
  1.215
  1.213
  1.213
  1.215
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
  1.214
Average production assets, $m
  32
  36
  41
  45
  50
  55
  61
  66
  72
  78
  85
  91
  98
  105
  113
  120
  128
  137
  145
  154
  164
  173
  184
  194
  205
  217
  229
  242
  255
  269
  283
Working capital, $m
  154
  17
  19
  21
  24
  26
  29
  31
  34
  37
  40
  43
  46
  49
  53
  57
  60
  64
  68
  72
  77
  81
  86
  91
  96
  102
  108
  114
  120
  126
  133
Total debt, $m
  0
  6
  13
  20
  28
  36
  44
  52
  61
  71
  80
  90
  101
  112
  123
  135
  147
  160
  173
  187
  201
  216
  232
  248
  265
  282
  301
  320
  340
  361
  384
Total liabilities, $m
  49
  55
  62
  69
  77
  85
  93
  101
  110
  120
  129
  139
  150
  161
  172
  184
  196
  209
  222
  236
  250
  265
  281
  297
  314
  331
  350
  369
  389
  410
  433
Total equity, $m
  249
  124
  139
  155
  172
  190
  208
  228
  248
  269
  291
  313
  337
  361
  387
  413
  440
  469
  499
  530
  562
  595
  630
  667
  705
  745
  786
  830
  875
  922
  972
Total liabilities and equity, $m
  298
  179
  201
  224
  249
  275
  301
  329
  358
  389
  420
  452
  487
  522
  559
  597
  636
  678
  721
  766
  812
  860
  911
  964
  1,019
  1,076
  1,136
  1,199
  1,264
  1,332
  1,405
Debt-to-equity ratio
  0.000
  0.050
  0.090
  0.130
  0.160
  0.190
  0.210
  0.230
  0.250
  0.260
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.330
  0.340
  0.350
  0.350
  0.360
  0.360
  0.370
  0.370
  0.380
  0.380
  0.380
  0.390
  0.390
  0.390
  0.390
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
  8
  9
  11
  12
  13
  15
  16
  18
  19
  25
  27
  28
  30
  32
  34
  36
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  67
  70
  74
Depreciation, amort., depletion, $m
  12
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  21
  22
  23
  24
  25
  27
  28
Funds from operations, $m
  14
  16
  17
  19
  21
  22
  24
  26
  28
  31
  33
  34
  36
  39
  42
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  79
  83
  88
  92
  97
  102
Change in working capital, $m
  -5
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
Cash from operations, $m
  19
  14
  15
  17
  18
  20
  22
  24
  26
  28
  30
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  59
  62
  66
  69
  73
  77
  82
  86
  91
  96
Maintenance CAPEX, $m
  0
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
New CAPEX, $m
  -8
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
Cash from investing activities, $m
  -34
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -24
  -26
  -27
  -29
  -30
  -33
  -34
  -36
  -37
  -39
  -41
Free cash flow, $m
  -15
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  16
  17
  19
  20
  22
  23
  25
  27
  29
  31
  32
  35
  37
  39
  41
  44
  46
  49
  51
  54
Issuance/(repayment) of debt, $m
  0
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
Issuance/(repurchase) of shares, $m
  4
  7
  7
  7
  6
  6
  5
  5
  4
  3
  2
  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
  13
  14
  14
  13
  14
  13
  14
  13
  12
  12
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
Total cash flow (excl. dividends), $m
  -6
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  26
  28
  29
  31
  33
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  73
  76
Retained Cash Flow (-), $m
  -27
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -42
  -43
  -45
  -47
  -50
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
  6
  6
  6
  3
  4
  5
  6
  7
  8
  9
  10
  11
  13
  14
  15
  16
  18
  19
  21
  22
  24
  25
  27
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
  5
  5
  5
  5
  4
  4
  4
  3
  3
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.3
  97.0
  95.8
  94.8
  94.0
  93.4
  92.9
  92.5
  92.2
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0
  92.0

SPS Commerce, Inc. provides cloud-based supply chain management solutions worldwide. It provides solutions through the SPS Commerce platform, a cloud-based product suite that enhances the way suppliers, retailers, distributors, logistics firms, and other trading partners manage and fulfill orders. The company offers Trading Partner Fulfillment solution, which provides fulfillment automation and replaces or augments an organization’s existing trading partner electronic communication infrastructure; Trading Partner Analytics solution that comprises data analytics applications to enhance visibility and analysis of customers supply chains; and Trading Partner Assortment solution to manage individual attributes associated with each item a retailer or supplier sells. It also provides Trading Partner Sourcing solution that enables retailers to source providers of new items, suppliers to connect with new retailers, and retailing community to make connections for expanding their business networks and grow; Trading Partner Community Development solution, which offers communications programs that enables retailers, suppliers, and emerging providers of value-added products and services to establish trading partner relationships with new trading partners to expand their businesses; and Other Trading Partner Solutions, such as barcode labeling, planogram services, and scan and pack application that helps trading partners process information to streamline the picking and packaging process. The company sells its solutions primarily through retail sales professionals and supplier sales representatives to small- to mid-sized suppliers in the consumer packaged goods industry, as well as retailers, distributors, third-party logistics providers, and other trading partners. The company was formerly known as St. Paul Software, Inc. and changed its name to SPS Commerce, Inc. in May 2001. SPS Commerce, Inc. was incorporated in 1987 and is headquartered in Minneapolis, Minnesota.

FINANCIAL RATIOS  of  SPS Commerce (SPSC)

Valuation Ratios
P/E Ratio 169.2
Price to Sales 5.3
Price to Book 4.1
Price to Tangible Book
Price to Cash Flow 53.4
Price to Free Cash Flow 92.3
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 13% 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 10 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 16.537 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 $1.0 billion.

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COMPANY NEWS

▶ 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]
▶ 5 Best States for Tech Jobs (SPSC, AMZN)   [May-04-16 06:01PM  at Investopedia]
Stock chart of SPSC Financial statements of SPSC Annual reports 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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