Intrinsic value of Trans World Entertainment - TWMC

Previous Close

$1.60

  Intrinsic Value

$1.18

stock screener

  Rating & Target

sell

-26%

  Value-price divergence*

+112%

Previous close

$1.60

 
Intrinsic value

$1.18

 
Up/down potential

-26%

 
Rating

sell

 
Value-price divergence*

+112%

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

We calculate the intrinsic value of TWMC 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 2017), $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
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.37
  34.20
  31.28
  28.65
  26.29
  24.16
  22.24
  20.52
  18.97
  17.57
  16.31
  15.18
  14.16
  13.25
  12.42
  11.68
  11.01
  10.41
  9.87
  9.38
  8.94
  8.55
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
Revenue, $m
  353
  474
  622
  800
  1,010
  1,255
  1,534
  1,848
  2,199
  2,585
  3,007
  3,463
  3,954
  4,477
  5,034
  5,622
  6,241
  6,890
  7,570
  8,281
  9,021
  9,793
  10,595
  11,430
  12,297
  13,198
  14,135
  15,108
  16,120
  17,172
  18,267
Variable operating expenses, $m
 
  466
  610
  784
  989
  1,227
  1,499
  1,806
  2,148
  2,524
  2,935
  3,376
  3,855
  4,365
  4,908
  5,481
  6,084
  6,718
  7,381
  8,073
  8,795
  9,547
  10,330
  11,143
  11,989
  12,868
  13,781
  14,730
  15,716
  16,742
  17,810
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
  357
  466
  610
  784
  989
  1,227
  1,499
  1,806
  2,148
  2,524
  2,935
  3,376
  3,855
  4,365
  4,908
  5,481
  6,084
  6,718
  7,381
  8,073
  8,795
  9,547
  10,330
  11,143
  11,989
  12,868
  13,781
  14,730
  15,716
  16,742
  17,810
Operating income, $m
  -4
  8
  12
  16
  21
  28
  35
  42
  51
  61
  71
  87
  99
  112
  126
  141
  156
  173
  190
  207
  226
  245
  265
  286
  308
  331
  354
  378
  404
  430
  458
EBITDA, $m
  5
  19
  25
  32
  40
  50
  61
  73
  87
  102
  119
  137
  157
  178
  200
  223
  247
  273
  300
  328
  358
  388
  420
  453
  488
  523
  560
  599
  639
  681
  724
Interest expense (income), $m
  1
  0
  1
  3
  5
  7
  10
  13
  16
  20
  24
  29
  34
  39
  45
  51
  57
  64
  71
  79
  86
  95
  103
  112
  121
  130
  140
  150
  161
  172
  183
Earnings before tax, $m
  -4
  8
  10
  13
  17
  20
  25
  30
  35
  41
  47
  58
  65
  73
  81
  90
  99
  108
  118
  129
  139
  151
  162
  175
  187
  200
  214
  228
  243
  258
  274
Tax expense, $m
  -7
  2
  3
  4
  4
  5
  7
  8
  9
  11
  13
  16
  18
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  47
  51
  54
  58
  62
  66
  70
  74
Net income, $m
  3
  6
  8
  10
  12
  15
  18
  22
  25
  30
  34
  42
  48
  53
  59
  66
  72
  79
  86
  94
  102
  110
  119
  127
  137
  146
  156
  167
  177
  188
  200

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  28
  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
  308
  376
  493
  634
  801
  995
  1,216
  1,466
  1,744
  2,050
  2,384
  2,746
  3,135
  3,551
  3,992
  4,458
  4,949
  5,464
  6,003
  6,567
  7,154
  7,766
  8,402
  9,064
  9,752
  10,466
  11,209
  11,981
  12,784
  13,618
  14,486
Adjusted assets (=assets-cash), $m
  280
  376
  493
  634
  801
  995
  1,216
  1,466
  1,744
  2,050
  2,384
  2,746
  3,135
  3,551
  3,992
  4,458
  4,949
  5,464
  6,003
  6,567
  7,154
  7,766
  8,402
  9,064
  9,752
  10,466
  11,209
  11,981
  12,784
  13,618
  14,486
Revenue / Adjusted assets
  1.261
  1.261
  1.262
  1.262
  1.261
  1.261
  1.262
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
  1.261
Average production assets, $m
  52
  69
  91
  117
  148
  183
  224
  270
  321
  377
  439
  506
  577
  654
  735
  821
  911
  1,006
  1,105
  1,209
  1,317
  1,430
  1,547
  1,669
  1,795
  1,927
  2,064
  2,206
  2,354
  2,507
  2,667
Working capital, $m
  98
  94
  123
  158
  200
  248
  304
  366
  435
  512
  595
  686
  783
  887
  997
  1,113
  1,236
  1,364
  1,499
  1,640
  1,786
  1,939
  2,098
  2,263
  2,435
  2,613
  2,799
  2,991
  3,192
  3,400
  3,617
Total debt, $m
  0
  38
  84
  139
  205
  281
  368
  466
  575
  696
  827
  969
  1,122
  1,285
  1,459
  1,642
  1,835
  2,037
  2,249
  2,471
  2,702
  2,942
  3,192
  3,452
  3,722
  4,003
  4,295
  4,599
  4,914
  5,242
  5,583
Total liabilities, $m
  110
  148
  194
  249
  315
  391
  478
  576
  685
  806
  937
  1,079
  1,232
  1,395
  1,569
  1,752
  1,945
  2,147
  2,359
  2,581
  2,812
  3,052
  3,302
  3,562
  3,832
  4,113
  4,405
  4,709
  5,024
  5,352
  5,693
Total equity, $m
  198
  228
  299
  385
  486
  604
  738
  890
  1,058
  1,244
  1,447
  1,667
  1,903
  2,155
  2,423
  2,706
  3,004
  3,317
  3,644
  3,986
  4,343
  4,714
  5,100
  5,502
  5,919
  6,353
  6,804
  7,273
  7,760
  8,266
  8,793
Total liabilities and equity, $m
  308
  376
  493
  634
  801
  995
  1,216
  1,466
  1,743
  2,050
  2,384
  2,746
  3,135
  3,550
  3,992
  4,458
  4,949
  5,464
  6,003
  6,567
  7,155
  7,766
  8,402
  9,064
  9,751
  10,466
  11,209
  11,982
  12,784
  13,618
  14,486
Debt-to-equity ratio
  0.000
  0.170
  0.280
  0.360
  0.420
  0.470
  0.500
  0.520
  0.540
  0.560
  0.570
  0.580
  0.590
  0.600
  0.600
  0.610
  0.610
  0.610
  0.620
  0.620
  0.620
  0.620
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
Adjusted equity ratio
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607
  0.607

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  6
  8
  10
  12
  15
  18
  22
  25
  30
  34
  42
  48
  53
  59
  66
  72
  79
  86
  94
  102
  110
  119
  127
  137
  146
  156
  167
  177
  188
  200
Depreciation, amort., depletion, $m
  9
  11
  13
  16
  19
  22
  26
  31
  36
  42
  48
  51
  58
  65
  73
  82
  91
  101
  111
  121
  132
  143
  155
  167
  180
  193
  206
  221
  235
  251
  267
Funds from operations, $m
  5
  17
  21
  25
  31
  37
  44
  52
  61
  71
  82
  93
  105
  119
  133
  148
  163
  180
  197
  215
  234
  253
  273
  294
  316
  339
  363
  387
  413
  439
  467
Change in working capital, $m
  1
  24
  29
  35
  42
  48
  55
  62
  69
  76
  83
  90
  97
  104
  110
  116
  123
  129
  135
  141
  147
  153
  159
  165
  172
  178
  185
  193
  200
  208
  217
Cash from operations, $m
  4
  -7
  -9
  -10
  -11
  -11
  -11
  -10
  -8
  -5
  -1
  2
  8
  15
  23
  31
  41
  51
  62
  74
  87
  100
  114
  129
  144
  160
  177
  194
  212
  231
  250
Maintenance CAPEX, $m
  0
  -5
  -7
  -9
  -12
  -15
  -18
  -22
  -27
  -32
  -38
  -44
  -51
  -58
  -65
  -73
  -82
  -91
  -101
  -111
  -121
  -132
  -143
  -155
  -167
  -180
  -193
  -206
  -221
  -235
  -251
New CAPEX, $m
  -25
  -18
  -22
  -26
  -31
  -36
  -41
  -46
  -51
  -56
  -62
  -67
  -72
  -76
  -81
  -86
  -90
  -95
  -99
  -104
  -108
  -113
  -117
  -122
  -127
  -132
  -137
  -142
  -148
  -154
  -160
Cash from investing activities, $m
  -57
  -23
  -29
  -35
  -43
  -51
  -59
  -68
  -78
  -88
  -100
  -111
  -123
  -134
  -146
  -159
  -172
  -186
  -200
  -215
  -229
  -245
  -260
  -277
  -294
  -312
  -330
  -348
  -369
  -389
  -411
Free cash flow, $m
  -53
  -30
  -37
  -45
  -53
  -62
  -70
  -78
  -86
  -94
  -101
  -108
  -114
  -119
  -124
  -128
  -132
  -135
  -138
  -140
  -142
  -144
  -146
  -147
  -149
  -151
  -152
  -154
  -156
  -158
  -161
Issuance/(repayment) of debt, $m
  -5
  38
  46
  56
  66
  76
  87
  98
  109
  120
  131
  142
  153
  163
  173
  183
  193
  202
  212
  221
  231
  240
  250
  260
  270
  281
  292
  303
  315
  328
  341
Issuance/(repurchase) of shares, $m
  -3
  52
  64
  76
  89
  103
  116
  130
  143
  156
  169
  178
  189
  199
  209
  217
  226
  234
  241
  248
  255
  261
  268
  274
  281
  288
  295
  302
  310
  318
  327
Cash from financing (excl. dividends), $m  
  -7
  90
  110
  132
  155
  179
  203
  228
  252
  276
  300
  320
  342
  362
  382
  400
  419
  436
  453
  469
  486
  501
  518
  534
  551
  569
  587
  605
  625
  646
  668
Total cash flow (excl. dividends), $m
  -60
  60
  73
  87
  101
  117
  133
  150
  166
  183
  199
  212
  227
  243
  258
  273
  287
  301
  315
  329
  343
  358
  372
  387
  402
  418
  434
  451
  469
  488
  508
Retained Cash Flow (-), $m
  -23
  -58
  -71
  -86
  -101
  -117
  -134
  -151
  -169
  -186
  -203
  -220
  -236
  -252
  -268
  -283
  -298
  -313
  -327
  -342
  -357
  -371
  -386
  -402
  -417
  -434
  -451
  -469
  -487
  -507
  -527
Prev. year cash balance distribution, $m
 
  28
  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
 
  30
  1
  1
  0
  0
  -1
  -2
  -2
  -3
  -4
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
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
 
  29
  1
  1
  0
  0
  -1
  -1
  -1
  -2
  -2
  -4
  -4
  -4
  -3
  -3
  -3
  -3
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  69.5
  49.7
  36.4
  27.4
  21.0
  16.5
  13.2
  10.7
  8.8
  7.4
  6.3
  5.4
  4.7
  4.2
  3.7
  3.3
  3.0
  2.7
  2.4
  2.2
  2.1
  1.9
  1.8
  1.7
  1.5
  1.4
  1.4
  1.3
  1.2
  1.1

Trans World Entertainment Corporation, together with its subsidiaries, operates as a specialty retailer of entertainment products in the United States, the District of Columbia, and the U.S. Virgin Islands. It offers trend, video, music, electronics, video games, and related products through retail stores and e-commerce sites. As of January 30, 2016, it operated 299 stores, including 258 traditional mall-based stores under the f.y.e. (For Your Entertainment) brand; 9 video only stores under the Suncoast Motion Pictures brand; and 32 freestanding stores primarily under the f.y.e. brand name. It also operates retail Web sites, including fye.com and secondspin.com. Trans World Entertainment Corporation was founded in 1972 and is headquartered in Albany, New York.

FINANCIAL RATIOS  of  Trans World Entertainment (TWMC)

Valuation Ratios
P/E Ratio 19.3
Price to Sales 0.2
Price to Book 0.3
Price to Tangible Book
Price to Cash Flow 14.4
Price to Free Cash Flow -2.8
Growth Rates
Sales Growth Rate 5.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 19%
Cap. Spend. - 3 Yr. Gr. Rate 25.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage -3
Management Effectiveness
Return On Assets 0.8%
Ret/ On Assets - 3 Yr. Avg. 1.3%
Return On Total Capital 1.6%
Ret/ On T. Cap. - 3 Yr. Avg. 1.5%
Return On Equity 1.6%
Return On Equity - 3 Yr. Avg. 1.5%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 38.2%
Gross Margin - 3 Yr. Avg. 38.4%
EBITDA Margin 1.7%
EBITDA Margin - 3 Yr. Avg. 2.3%
Operating Margin -1.1%
Oper. Margin - 3 Yr. Avg. 0.4%
Pre-Tax Margin -1.1%
Pre-Tax Margin - 3 Yr. Avg. 0.1%
Net Profit Margin 0.8%
Net Profit Margin - 3 Yr. Avg. 0.8%
Effective Tax Rate 175%
Eff/ Tax Rate - 3 Yr. Avg. 58.3%
Payout Ratio 0%

TWMC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TWMC stock intrinsic value calculation we used $353 million for the last fiscal year's total revenue generated by Trans World Entertainment. The default revenue input number comes from 2017 income statement of Trans World Entertainment. 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 TWMC stock valuation model: a) initial revenue growth rate of 34.2% 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 TWMC is calculated based on our internal credit rating of Trans World Entertainment, 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 Trans World Entertainment.
    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 TWMC stock the variable cost ratio is equal to 98.6%.

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 TWMC 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 Trans World Entertainment.

Corporate tax rate of 27% is the nominal tax rate for Trans World Entertainment. 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 TWMC 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 TWMC are equal to 14.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Trans World Entertainment 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 TWMC is equal to 19.8%. 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 - $198 million for Trans World Entertainment - 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 33.626 million for Trans World Entertainment 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 Trans World Entertainment at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Trans World Entertainment posts 2Q loss   [Aug-22-17 10:51PM  Associated Press]
▶ Trans World Entertainment posts 1Q profit   [May-22-17 07:43AM  Associated Press]
▶ Why the CEO of FYE is optimistic even as store sales fall   [Mar-16-17 02:00PM  at bizjournals.com]
▶ Why the CEO of FYE is optimistic even as store sales fall   [02:00PM  American City Business Journals]
▶ Trans World Entertainment posts 4Q profit   [07:42AM  Associated Press]
▶ Bob Higgins, chairman of Trans World Entertainment in Albany, dies   [11:51AM  American City Business Journals]
▶ Trans World Entertainment Announces Holiday Sales Results   [Jan-05-17 05:00PM  GlobeNewswire]
▶ $75 million deal gives retailer FYE a digital marketplace partner   [Oct-18-16 08:32AM  at bizjournals.com]
▶ 2 Stocks Below Net Currrent Asset Value   [Dec-17  02:00PM  at Investopedia]
▶ A new merchandising chief at music and video retailer FYE   [Jun-17  07:25AM  at bizjournals.com]
Financial statements of TWMC
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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