Intrinsic value of ONE Group Hospitality - STKS

Previous Close

$1.75

  Intrinsic Value

$0.08

stock screener

  Rating & Target

str. sell

-95%

  Value-price divergence*

+2898%

Previous close

$1.75

 
Intrinsic value

$0.08

 
Up/down potential

-95%

 
Rating

str. sell

 
Value-price divergence*

+2898%

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

We calculate the intrinsic value of STKS 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, %
  18.03
  25.00
  23.00
  21.20
  19.58
  18.12
  16.81
  15.63
  14.57
  13.61
  12.75
  11.97
  11.28
  10.65
  10.08
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
  6.05
  5.94
Revenue, $m
  72
  90
  111
  134
  160
  190
  221
  256
  293
  333
  376
  421
  468
  518
  570
  625
  682
  741
  803
  867
  934
  1,003
  1,075
  1,150
  1,228
  1,309
  1,393
  1,481
  1,572
  1,667
  1,766
Variable operating expenses, $m
 
  93
  114
  138
  165
  195
  228
  263
  301
  342
  386
  432
  481
  532
  586
  642
  701
  762
  825
  891
  960
  1,031
  1,105
  1,182
  1,262
  1,346
  1,432
  1,523
  1,616
  1,714
  1,816
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
  78
  93
  114
  138
  165
  195
  228
  263
  301
  342
  386
  432
  481
  532
  586
  642
  701
  762
  825
  891
  960
  1,031
  1,105
  1,182
  1,262
  1,346
  1,432
  1,523
  1,616
  1,714
  1,816
Operating income, $m
  -6
  -3
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -15
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -41
  -44
  -47
  -49
EBITDA, $m
  -3
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
Interest expense (income), $m
  1
  1
  2
  2
  3
  4
  6
  7
  8
  10
  11
  13
  15
  16
  18
  20
  22
  25
  27
  29
  32
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
Earnings before tax, $m
  -6
  -3
  -5
  -6
  -8
  -10
  -12
  -14
  -16
  -19
  -22
  -25
  -28
  -31
  -34
  -38
  -42
  -45
  -49
  -54
  -58
  -63
  -67
  -72
  -77
  -82
  -88
  -94
  -100
  -106
  -112
Tax expense, $m
  10
  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
Net income, $m
  -17
  -3
  -5
  -6
  -8
  -10
  -12
  -14
  -16
  -19
  -22
  -25
  -28
  -31
  -34
  -38
  -42
  -45
  -49
  -54
  -58
  -63
  -67
  -72
  -77
  -82
  -88
  -94
  -100
  -106
  -112

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  53
  64
  78
  95
  114
  134
  157
  181
  208
  236
  266
  298
  331
  367
  404
  442
  483
  525
  569
  614
  661
  710
  762
  815
  870
  927
  987
  1,049
  1,114
  1,181
  1,251
Adjusted assets (=assets-cash), $m
  51
  64
  78
  95
  114
  134
  157
  181
  208
  236
  266
  298
  331
  367
  404
  442
  483
  525
  569
  614
  661
  710
  762
  815
  870
  927
  987
  1,049
  1,114
  1,181
  1,251
Revenue / Adjusted assets
  1.412
  1.406
  1.423
  1.411
  1.404
  1.418
  1.408
  1.414
  1.409
  1.411
  1.414
  1.413
  1.414
  1.411
  1.411
  1.414
  1.412
  1.411
  1.411
  1.412
  1.413
  1.413
  1.411
  1.411
  1.411
  1.412
  1.411
  1.412
  1.411
  1.412
  1.412
Average production assets, $m
  33
  41
  50
  61
  72
  85
  100
  115
  132
  150
  169
  190
  211
  234
  257
  282
  307
  334
  362
  391
  421
  452
  485
  519
  554
  590
  628
  668
  709
  752
  797
Working capital, $m
  -4
  -3
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -15
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -41
  -44
  -47
  -49
Total debt, $m
  17
  26
  38
  52
  68
  85
  104
  125
  147
  171
  196
  223
  251
  281
  312
  345
  379
  414
  451
  490
  529
  571
  614
  659
  705
  754
  804
  856
  911
  967
  1,027
Total liabilities, $m
  45
  54
  66
  80
  96
  113
  132
  153
  175
  199
  224
  251
  279
  309
  340
  373
  407
  442
  479
  518
  557
  599
  642
  687
  733
  782
  832
  884
  939
  995
  1,055
Total equity, $m
  8
  10
  12
  15
  18
  21
  25
  28
  33
  37
  42
  47
  52
  58
  63
  69
  76
  82
  89
  96
  104
  112
  120
  128
  137
  146
  155
  165
  175
  185
  196
Total liabilities and equity, $m
  53
  64
  78
  95
  114
  134
  157
  181
  208
  236
  266
  298
  331
  367
  403
  442
  483
  524
  568
  614
  661
  711
  762
  815
  870
  928
  987
  1,049
  1,114
  1,180
  1,251
Debt-to-equity ratio
  2.125
  2.570
  3.090
  3.490
  3.800
  4.040
  4.230
  4.390
  4.510
  4.610
  4.700
  4.770
  4.830
  4.880
  4.930
  4.970
  5.000
  5.030
  5.060
  5.080
  5.100
  5.120
  5.140
  5.150
  5.160
  5.180
  5.190
  5.200
  5.210
  5.220
  5.230
Adjusted equity ratio
  0.137
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157
  0.157

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -17
  -3
  -5
  -6
  -8
  -10
  -12
  -14
  -16
  -19
  -22
  -25
  -28
  -31
  -34
  -38
  -42
  -45
  -49
  -54
  -58
  -63
  -67
  -72
  -77
  -82
  -88
  -94
  -100
  -106
  -112
Depreciation, amort., depletion, $m
  3
  4
  5
  6
  7
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  26
  28
  31
  34
  36
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
Funds from operations, $m
  8
  0
  0
  -1
  -1
  -2
  -2
  -3
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -39
Change in working capital, $m
  6
  -1
  -1
  -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
Cash from operations, $m
  2
  1
  0
  0
  0
  -1
  -2
  -2
  -3
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24
  -26
  -27
  -29
  -31
  -34
  -36
Maintenance CAPEX, $m
  0
  -3
  -4
  -5
  -6
  -7
  -8
  -9
  -11
  -12
  -14
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -31
  -34
  -36
  -39
  -42
  -45
  -48
  -51
  -55
  -58
  -62
  -66
  -70
New CAPEX, $m
  -11
  -8
  -9
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
Cash from investing activities, $m
  -10
  -11
  -13
  -16
  -18
  -20
  -22
  -25
  -28
  -30
  -33
  -36
  -39
  -42
  -46
  -49
  -52
  -55
  -59
  -63
  -66
  -70
  -75
  -79
  -83
  -88
  -93
  -98
  -103
  -109
  -115
Free cash flow, $m
  -8
  -10
  -13
  -15
  -18
  -21
  -24
  -27
  -31
  -34
  -38
  -42
  -46
  -50
  -54
  -59
  -63
  -68
  -73
  -78
  -83
  -89
  -95
  -101
  -107
  -113
  -120
  -127
  -134
  -142
  -150
Issuance/(repayment) of debt, $m
  4
  11
  12
  14
  16
  17
  19
  21
  22
  24
  25
  27
  28
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  48
  50
  52
  54
  57
  59
Issuance/(repurchase) of shares, $m
  4
  6
  7
  9
  11
  13
  15
  18
  20
  23
  26
  30
  33
  36
  40
  44
  48
  52
  56
  61
  65
  70
  75
  80
  86
  92
  97
  103
  110
  116
  123
Cash from financing (excl. dividends), $m  
  8
  17
  19
  23
  27
  30
  34
  39
  42
  47
  51
  57
  61
  66
  71
  77
  82
  87
  93
  99
  105
  111
  118
  125
  133
  140
  147
  155
  164
  173
  182
Total cash flow (excl. dividends), $m
  0
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  25
  26
  28
  29
  30
  31
  32
Retained Cash Flow (-), $m
  12
  -6
  -7
  -9
  -11
  -13
  -15
  -18
  -20
  -23
  -26
  -30
  -33
  -36
  -40
  -44
  -48
  -52
  -56
  -61
  -65
  -70
  -75
  -80
  -86
  -92
  -97
  -103
  -110
  -116
  -123
Prev. year cash balance distribution, $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 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
 
  0
  0
  -1
  -2
  -3
  -5
  -6
  -8
  -10
  -12
  -15
  -17
  -20
  -23
  -26
  -29
  -33
  -36
  -40
  -44
  -48
  -52
  -56
  -60
  -65
  -70
  -75
  -80
  -85
  -91
Discount rate, %
 
  10.90
  11.45
  12.02
  12.62
  13.25
  13.91
  14.61
  15.34
  16.10
  16.91
  17.75
  18.64
  19.57
  20.55
  21.58
  22.66
  23.79
  24.98
  26.23
  27.54
  28.92
  30.37
  31.89
  33.48
  35.15
  36.91
  38.76
  40.69
  42.73
  44.87
PV of cash for distribution, $m
 
  0
  0
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  88.7
  78.5
  69.3
  61.2
  53.9
  47.6
  42.0
  37.1
  32.7
  28.9
  25.6
  22.7
  20.1
  17.8
  15.8
  14.0
  12.4
  11.0
  9.8
  8.7
  7.7
  6.9
  6.1
  5.5
  4.9
  4.3
  3.8
  3.4
  3.1
  2.7

The ONE Group Hospitality, Inc., a hospitality company, develops, owns, and operates restaurants and lounges worldwide. It operates through three segments: STK Units, Food and Beverage Hospitality Management Agreements, and Other Concepts. It also provides turn-key food and beverage services for hospitality venues, including hotels, casinos, and other locations. Its hospitality food and beverage solutions include developing, managing, and operating restaurants, bars, rooftops, pools, banqueting, catering, private dining rooms, room service, and mini bars. The company operates restaurants primarily under the STK brand. As of January 17, 2017, it owned and operated 14 restaurants. The company was founded in 2004 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  ONE Group Hospitality (STKS)

Valuation Ratios
P/E Ratio -2.6
Price to Sales 0.6
Price to Book 5.5
Price to Tangible Book
Price to Cash Flow 21.9
Price to Free Cash Flow -4.9
Growth Rates
Sales Growth Rate 18%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21.4%
Cap. Spend. - 3 Yr. Gr. Rate 61.5%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 162.5%
Total Debt to Equity 212.5%
Interest Coverage -5
Management Effectiveness
Return On Assets -26.3%
Ret/ On Assets - 3 Yr. Avg. 0.4%
Return On Total Capital -57.6%
Ret/ On T. Cap. - 3 Yr. Avg. 0.8%
Return On Equity -121.4%
Return On Equity - 3 Yr. Avg. -10.5%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 77.8%
Gross Margin - 3 Yr. Avg. 78.1%
EBITDA Margin -2.8%
EBITDA Margin - 3 Yr. Avg. 4.5%
Operating Margin -8.3%
Oper. Margin - 3 Yr. Avg. 0.9%
Pre-Tax Margin -8.3%
Pre-Tax Margin - 3 Yr. Avg. 0.9%
Net Profit Margin -23.6%
Net Profit Margin - 3 Yr. Avg. -0.6%
Effective Tax Rate -166.7%
Eff/ Tax Rate - 3 Yr. Avg. 94.4%
Payout Ratio 0%

STKS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the STKS stock intrinsic value calculation we used $72 million for the last fiscal year's total revenue generated by ONE Group Hospitality. The default revenue input number comes from 2016 income statement of ONE Group Hospitality. 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 STKS stock valuation model: a) initial revenue growth rate of 25% 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 10.9%, whose default value for STKS is calculated based on our internal credit rating of ONE Group Hospitality, 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 ONE Group Hospitality.
    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 STKS stock the variable cost ratio is equal to 102.8%.

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 STKS 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 6.5% for ONE Group Hospitality.

Corporate tax rate of 27% is the nominal tax rate for ONE Group Hospitality. 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 STKS 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 STKS are equal to 45.1%.

Life of production assets of 10.8 years is the average useful life of capital assets used in ONE Group Hospitality 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 STKS is equal to -2.8%. 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 - $8 million for ONE Group Hospitality - 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 24.78 million for ONE Group Hospitality 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 ONE Group Hospitality at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ The ONE Group Announces First Quarter 2017 Results   [May-15-17 04:05PM  Business Wire]
▶ The ONE Group Hospitality Announces Management Changes   [Apr-21-17 04:30PM  Business Wire]
▶ The ONE Group Announces Opening of STK Denver   [Jan-17-17 09:00AM  Business Wire]
▶ 5 Great Stocks to Beat the Restaurant Recession   [Dec-12-16 06:01PM  Zacks]
▶ The ONE Group Announces Opening of STK Ibiza   [09:00AM  Business Wire]
▶ STK Orlando Opens in Disney Springs   [09:00AM  Business Wire]
▶ The ONE Group Announces New COO   [09:00AM  Business Wire]
Stock chart of STKS Financial statements of STKS
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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