Intrinsic value of Tarena International ADR - TEDU

Previous Close

$18.07

  Intrinsic Value

$54.84

stock screener

  Rating & Target

str. buy

+203%

  Value-price divergence*

-31%

Previous close

$18.07

 
Intrinsic value

$54.84

 
Up/down potential

+203%

 
Rating

str. buy

 
Value-price divergence*

-31%

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

We calculate the intrinsic value of TEDU 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, %
  34.71
  34.70
  31.73
  29.06
  26.65
  24.49
  22.54
  20.78
  19.21
  17.78
  16.51
  15.36
  14.32
  13.39
  12.55
  11.79
  11.11
  10.50
  9.95
  9.46
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
Revenue, $m
  229
  308
  406
  524
  664
  827
  1,013
  1,224
  1,459
  1,718
  2,002
  2,309
  2,640
  2,993
  3,369
  3,766
  4,185
  4,624
  5,085
  5,566
  6,067
  6,590
  7,133
  7,698
  8,286
  8,897
  9,531
  10,191
  10,876
  11,589
  12,331
Variable operating expenses, $m
 
  245
  323
  417
  528
  657
  805
  973
  1,160
  1,366
  1,591
  1,836
  2,099
  2,380
  2,678
  2,994
  3,327
  3,676
  4,042
  4,425
  4,823
  5,239
  5,671
  6,120
  6,587
  7,073
  7,577
  8,102
  8,647
  9,213
  9,803
Fixed operating expenses, $m
 
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  27
Total operating expenses, $m
  195
  258
  337
  431
  542
  672
  820
  988
  1,176
  1,382
  1,608
  1,853
  2,116
  2,398
  2,696
  3,013
  3,346
  3,696
  4,062
  4,446
  4,844
  5,261
  5,693
  6,143
  6,611
  7,097
  7,602
  8,127
  8,673
  9,240
  9,830
Operating income, $m
  33
  50
  70
  94
  122
  155
  193
  235
  283
  336
  394
  456
  524
  596
  672
  753
  839
  928
  1,022
  1,120
  1,222
  1,329
  1,440
  1,555
  1,675
  1,800
  1,929
  2,064
  2,204
  2,349
  2,501
EBITDA, $m
  44
  55
  77
  103
  134
  170
  211
  257
  309
  367
  430
  498
  571
  649
  733
  821
  914
  1,011
  1,113
  1,220
  1,331
  1,447
  1,568
  1,693
  1,823
  1,959
  2,100
  2,246
  2,398
  2,557
  2,721
Interest expense (income), $m
  0
  0
  1
  2
  3
  5
  6
  9
  11
  13
  16
  19
  23
  26
  30
  34
  38
  43
  48
  53
  58
  63
  69
  75
  81
  87
  94
  101
  108
  116
  123
Earnings before tax, $m
  38
  50
  69
  92
  119
  150
  186
  227
  272
  323
  378
  437
  501
  570
  642
  719
  800
  885
  974
  1,067
  1,165
  1,266
  1,371
  1,480
  1,594
  1,712
  1,835
  1,963
  2,095
  2,234
  2,377
Tax expense, $m
  3
  13
  19
  25
  32
  41
  50
  61
  74
  87
  102
  118
  135
  154
  173
  194
  216
  239
  263
  288
  314
  342
  370
  400
  430
  462
  495
  530
  566
  603
  642
Net income, $m
  35
  36
  50
  67
  87
  110
  136
  166
  199
  236
  276
  319
  366
  416
  469
  525
  584
  646
  711
  779
  850
  924
  1,001
  1,081
  1,164
  1,250
  1,340
  1,433
  1,530
  1,630
  1,735

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  178
  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
  302
  167
  220
  284
  360
  448
  549
  663
  790
  930
  1,084
  1,250
  1,429
  1,621
  1,824
  2,039
  2,266
  2,504
  2,753
  3,013
  3,285
  3,568
  3,862
  4,168
  4,486
  4,817
  5,160
  5,517
  5,889
  6,275
  6,676
Adjusted assets (=assets-cash), $m
  124
  167
  220
  284
  360
  448
  549
  663
  790
  930
  1,084
  1,250
  1,429
  1,621
  1,824
  2,039
  2,266
  2,504
  2,753
  3,013
  3,285
  3,568
  3,862
  4,168
  4,486
  4,817
  5,160
  5,517
  5,889
  6,275
  6,676
Revenue / Adjusted assets
  1.847
  1.844
  1.845
  1.845
  1.844
  1.846
  1.845
  1.846
  1.847
  1.847
  1.847
  1.847
  1.847
  1.846
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
Average production assets, $m
  41
  55
  73
  94
  119
  148
  181
  219
  261
  308
  358
  413
  473
  536
  603
  674
  749
  828
  910
  996
  1,086
  1,180
  1,277
  1,378
  1,483
  1,592
  1,706
  1,824
  1,947
  2,074
  2,207
Working capital, $m
  141
  -31
  -41
  -52
  -66
  -83
  -101
  -122
  -146
  -172
  -200
  -231
  -264
  -299
  -337
  -377
  -418
  -462
  -508
  -557
  -607
  -659
  -713
  -770
  -829
  -890
  -953
  -1,019
  -1,088
  -1,159
  -1,233
Total debt, $m
  0
  25
  55
  92
  135
  186
  243
  309
  382
  462
  550
  645
  748
  858
  974
  1,097
  1,227
  1,364
  1,506
  1,656
  1,811
  1,973
  2,142
  2,317
  2,500
  2,689
  2,886
  3,090
  3,303
  3,524
  3,754
Total liabilities, $m
  70
  96
  126
  163
  206
  257
  314
  380
  453
  533
  621
  716
  819
  929
  1,045
  1,168
  1,298
  1,435
  1,577
  1,727
  1,882
  2,044
  2,213
  2,388
  2,571
  2,760
  2,957
  3,161
  3,374
  3,595
  3,825
Total equity, $m
  231
  71
  94
  121
  154
  191
  234
  283
  337
  397
  463
  534
  610
  692
  779
  871
  967
  1,069
  1,176
  1,287
  1,403
  1,523
  1,649
  1,780
  1,916
  2,057
  2,203
  2,356
  2,514
  2,679
  2,851
Total liabilities and equity, $m
  301
  167
  220
  284
  360
  448
  548
  663
  790
  930
  1,084
  1,250
  1,429
  1,621
  1,824
  2,039
  2,265
  2,504
  2,753
  3,014
  3,285
  3,567
  3,862
  4,168
  4,487
  4,817
  5,160
  5,517
  5,888
  6,274
  6,676
Debt-to-equity ratio
  0.000
  0.350
  0.590
  0.760
  0.880
  0.970
  1.040
  1.090
  1.130
  1.160
  1.190
  1.210
  1.230
  1.240
  1.250
  1.260
  1.270
  1.280
  1.280
  1.290
  1.290
  1.300
  1.300
  1.300
  1.300
  1.310
  1.310
  1.310
  1.310
  1.320
  1.320
Adjusted equity ratio
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  35
  36
  50
  67
  87
  110
  136
  166
  199
  236
  276
  319
  366
  416
  469
  525
  584
  646
  711
  779
  850
  924
  1,001
  1,081
  1,164
  1,250
  1,340
  1,433
  1,530
  1,630
  1,735
Depreciation, amort., depletion, $m
  11
  6
  7
  9
  12
  15
  18
  22
  26
  31
  36
  41
  47
  54
  60
  67
  75
  83
  91
  100
  109
  118
  128
  138
  148
  159
  171
  182
  195
  207
  221
Funds from operations, $m
  95
  42
  57
  76
  98
  124
  154
  188
  225
  266
  311
  360
  413
  469
  529
  592
  659
  729
  802
  879
  959
  1,042
  1,128
  1,218
  1,312
  1,409
  1,510
  1,615
  1,724
  1,838
  1,956
Change in working capital, $m
  19
  -8
  -10
  -12
  -14
  -16
  -19
  -21
  -24
  -26
  -28
  -31
  -33
  -35
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -61
  -63
  -66
  -69
  -71
  -74
Cash from operations, $m
  76
  50
  67
  88
  112
  141
  173
  209
  248
  292
  340
  391
  446
  505
  567
  632
  701
  773
  848
  927
  1,009
  1,094
  1,183
  1,275
  1,371
  1,470
  1,574
  1,681
  1,793
  1,909
  2,030
Maintenance CAPEX, $m
  0
  -4
  -6
  -7
  -9
  -12
  -15
  -18
  -22
  -26
  -31
  -36
  -41
  -47
  -54
  -60
  -67
  -75
  -83
  -91
  -100
  -109
  -118
  -128
  -138
  -148
  -159
  -171
  -182
  -195
  -207
New CAPEX, $m
  -55
  -14
  -18
  -21
  -25
  -29
  -33
  -38
  -42
  -46
  -51
  -55
  -59
  -63
  -67
  -71
  -75
  -79
  -82
  -86
  -90
  -94
  -97
  -101
  -105
  -109
  -114
  -118
  -123
  -128
  -133
Cash from investing activities, $m
  -23
  -18
  -24
  -28
  -34
  -41
  -48
  -56
  -64
  -72
  -82
  -91
  -100
  -110
  -121
  -131
  -142
  -154
  -165
  -177
  -190
  -203
  -215
  -229
  -243
  -257
  -273
  -289
  -305
  -323
  -340
Free cash flow, $m
  53
  32
  44
  60
  78
  100
  124
  153
  184
  220
  258
  300
  346
  394
  446
  501
  559
  619
  683
  750
  819
  892
  968
  1,046
  1,128
  1,213
  1,301
  1,393
  1,488
  1,587
  1,690
Issuance/(repayment) of debt, $m
  0
  25
  30
  37
  43
  50
  58
  65
  73
  80
  88
  95
  103
  110
  117
  123
  130
  136
  143
  149
  156
  162
  169
  175
  182
  189
  197
  205
  213
  221
  230
Issuance/(repurchase) of shares, $m
  3
  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  
  -3
  25
  30
  37
  43
  50
  58
  65
  73
  80
  88
  95
  103
  110
  117
  123
  130
  136
  143
  149
  156
  162
  169
  175
  182
  189
  197
  205
  213
  221
  230
Total cash flow (excl. dividends), $m
  51
  56
  75
  96
  121
  150
  182
  218
  257
  300
  346
  396
  448
  504
  562
  624
  688
  756
  826
  899
  975
  1,054
  1,136
  1,221
  1,310
  1,402
  1,498
  1,597
  1,700
  1,808
  1,920
Retained Cash Flow (-), $m
  -37
  -18
  -23
  -27
  -32
  -38
  -43
  -49
  -54
  -60
  -66
  -71
  -76
  -82
  -87
  -92
  -97
  -102
  -106
  -111
  -116
  -121
  -126
  -131
  -136
  -141
  -147
  -152
  -158
  -165
  -171
Prev. year cash balance distribution, $m
 
  178
  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
 
  216
  52
  69
  89
  112
  139
  169
  203
  240
  281
  325
  372
  422
  476
  532
  592
  654
  720
  788
  859
  933
  1,010
  1,091
  1,174
  1,261
  1,351
  1,445
  1,542
  1,643
  1,749
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
 
  207
  48
  60
  73
  87
  101
  114
  127
  138
  147
  154
  159
  160
  160
  156
  150
  142
  133
  121
  109
  97
  84
  71
  60
  49
  39
  31
  24
  18
  13
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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Tarena International, Inc., through its subsidiaries, primarily provides information technology (IT) professional education services through part-time and full-time classes in the People’s Republic of China. It offers education courses in 11 IT subjects, such as Java, .NET, C++, software testing, PHP, embedded, Android, iOS, Big Data, Web front-end development, and Linux and network engineering; and 3 non-IT subjects comprising digital art, online sales and marketing, and accounting through live distance instruction, classroom-based tutoring, and online learning modules. The company also provides two kid education programs, including Tongcheng and Tongmei. Tarena International, Inc. was founded in 2002 and is headquartered in Beijing, the People’s Republic of China.

FINANCIAL RATIOS  of  Tarena International ADR (TEDU)

Valuation Ratios
P/E Ratio 28.9
Price to Sales 4.4
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 13.3
Price to Free Cash Flow 48.2
Growth Rates
Sales Growth Rate 34.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 292.9%
Cap. Spend. - 3 Yr. Gr. Rate 43.6%
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 12.9%
Ret/ On Assets - 3 Yr. Avg. 13.2%
Return On Total Capital 16.5%
Ret/ On T. Cap. - 3 Yr. Avg. 16.5%
Return On Equity 16.5%
Return On Equity - 3 Yr. Avg. 16.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 71.6%
Gross Margin - 3 Yr. Avg. 71.5%
EBITDA Margin 21.4%
EBITDA Margin - 3 Yr. Avg. 22.1%
Operating Margin 14.8%
Oper. Margin - 3 Yr. Avg. 13.9%
Pre-Tax Margin 16.6%
Pre-Tax Margin - 3 Yr. Avg. 17.2%
Net Profit Margin 15.3%
Net Profit Margin - 3 Yr. Avg. 16.3%
Effective Tax Rate 7.9%
Eff/ Tax Rate - 3 Yr. Avg. 5.4%
Payout Ratio 22.9%

TEDU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TEDU stock intrinsic value calculation we used $229 million for the last fiscal year's total revenue generated by Tarena International ADR. The default revenue input number comes from 2016 income statement of Tarena International ADR. 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 TEDU stock valuation model: a) initial revenue growth rate of 34.7% 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 TEDU is calculated based on our internal credit rating of Tarena International ADR, 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 Tarena International ADR.
    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 TEDU stock the variable cost ratio is equal to 79.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13 million in the base year in the intrinsic value calculation for TEDU 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 Tarena International ADR.

Corporate tax rate of 27% is the nominal tax rate for Tarena International ADR. 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 TEDU 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 TEDU are equal to 17.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Tarena International ADR 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 TEDU is equal to -10%. 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 - $231 million for Tarena International ADR - 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 55.829 million for Tarena International ADR 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 Tarena International ADR at the current share price and the inputted number of shares is $1.0 billion.

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COMPANY NEWS

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▶ Top Chinese Stock Slips On Weak Bottom Line, Guidance   [May-22-17 05:24PM  Investor's Business Daily]
▶ Tarena Filed 2016 Annual Report on Form 20-F   [Apr-25-17 06:00PM  PR Newswire]
▶ TAL Education Breaks Out From Late-Stage Base On Strong Q3   [Jan-19-17 04:09PM  Investor's Business Daily]
▶ TARENA INTERNATIONAL, INC. Financials   [01:04PM  EDGAR Online Financials]
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Stock chart of TEDU Financial statements of TEDU
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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