Intrinsic value of WPCS International - WPCS

Previous Close

$1.67

  Intrinsic Value

$200.38

stock screener

  Rating & Target

str. buy

+999%

Previous close

$1.67

 
Intrinsic value

$200.38

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of WPCS 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 0.0

 

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, %
  13.33
  33.30
  30.47
  27.92
  25.63
  23.57
  21.71
  20.04
  18.54
  17.18
  15.96
  14.87
  13.88
  12.99
  12.19
  11.47
  10.83
  10.24
  9.72
  9.25
  8.82
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
Revenue, $m
  17
  23
  30
  38
  48
  59
  71
  86
  102
  119
  138
  159
  181
  204
  229
  255
  283
  312
  342
  374
  407
  441
  477
  514
  553
  593
  635
  678
  723
  770
  819
Variable operating expenses, $m
 
  5
  7
  9
  11
  14
  17
  20
  24
  28
  32
  37
  42
  48
  54
  60
  67
  73
  80
  88
  96
  104
  112
  121
  130
  139
  149
  159
  170
  181
  192
Fixed operating expenses, $m
 
  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
  28
  29
  29
Total operating expenses, $m
  18
  19
  22
  24
  26
  30
  33
  37
  41
  45
  50
  55
  61
  67
  74
  80
  88
  94
  102
  110
  119
  128
  136
  146
  155
  165
  176
  186
  198
  210
  221
Operating income, $m
  -1
  3
  8
  14
  21
  29
  38
  49
  61
  74
  88
  103
  119
  137
  156
  175
  196
  217
  240
  264
  288
  314
  341
  369
  398
  428
  459
  492
  525
  560
  597
EBITDA, $m
  -1
  3
  8
  14
  21
  29
  38
  49
  61
  74
  88
  103
  119
  137
  156
  175
  196
  217
  240
  264
  288
  314
  341
  369
  398
  428
  459
  492
  525
  560
  597
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
Earnings before tax, $m
  -1
  3
  8
  14
  21
  29
  38
  49
  60
  73
  87
  102
  118
  136
  154
  173
  194
  215
  238
  261
  286
  311
  337
  365
  394
  423
  454
  486
  520
  555
  591
Tax expense, $m
  0
  1
  2
  4
  6
  8
  10
  13
  16
  20
  23
  28
  32
  37
  42
  47
  52
  58
  64
  70
  77
  84
  91
  99
  106
  114
  123
  131
  140
  150
  160
Net income, $m
  -1
  2
  6
  10
  15
  21
  28
  35
  44
  53
  63
  74
  86
  99
  112
  127
  141
  157
  174
  191
  208
  227
  246
  266
  287
  309
  332
  355
  379
  405
  431

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
  7
  7
  9
  11
  14
  17
  21
  25
  30
  35
  41
  47
  53
  60
  67
  75
  83
  92
  101
  110
  120
  130
  140
  151
  163
  174
  187
  199
  213
  226
  241
Adjusted assets (=assets-cash), $m
  5
  7
  9
  11
  14
  17
  21
  25
  30
  35
  41
  47
  53
  60
  67
  75
  83
  92
  101
  110
  120
  130
  140
  151
  163
  174
  187
  199
  213
  226
  241
Revenue / Adjusted assets
  3.400
  3.286
  3.333
  3.455
  3.429
  3.471
  3.381
  3.440
  3.400
  3.400
  3.366
  3.383
  3.415
  3.400
  3.418
  3.400
  3.410
  3.391
  3.386
  3.400
  3.392
  3.392
  3.407
  3.404
  3.393
  3.408
  3.396
  3.407
  3.394
  3.407
  3.398
Average production assets, $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
  0
Working capital, $m
  3
  1
  2
  2
  3
  3
  4
  5
  6
  7
  8
  9
  11
  12
  14
  15
  17
  18
  20
  22
  24
  26
  28
  30
  33
  35
  37
  40
  43
  45
  48
Total debt, $m
  0
  1
  3
  5
  7
  10
  13
  16
  20
  24
  29
  33
  39
  44
  50
  56
  63
  69
  77
  84
  92
  100
  108
  117
  126
  136
  145
  156
  166
  177
  189
Total liabilities, $m
  4
  5
  7
  9
  11
  14
  17
  20
  24
  28
  33
  37
  43
  48
  54
  60
  67
  73
  81
  88
  96
  104
  112
  121
  130
  140
  149
  160
  170
  181
  193
Total equity, $m
  3
  1
  2
  2
  3
  3
  4
  5
  6
  7
  8
  9
  11
  12
  13
  15
  17
  18
  20
  22
  24
  26
  28
  30
  33
  35
  37
  40
  43
  45
  48
Total liabilities and equity, $m
  7
  6
  9
  11
  14
  17
  21
  25
  30
  35
  41
  46
  54
  60
  67
  75
  84
  91
  101
  110
  120
  130
  140
  151
  163
  175
  186
  200
  213
  226
  241
Debt-to-equity ratio
  0.000
  1.000
  1.700
  2.200
  2.570
  2.840
  3.050
  3.210
  3.330
  3.430
  3.510
  3.570
  3.620
  3.670
  3.700
  3.730
  3.760
  3.780
  3.800
  3.820
  3.830
  3.850
  3.860
  3.870
  3.880
  3.890
  3.890
  3.900
  3.910
  3.910
  3.920
Adjusted equity ratio
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1
  2
  6
  10
  15
  21
  28
  35
  44
  53
  63
  74
  86
  99
  112
  127
  141
  157
  174
  191
  208
  227
  246
  266
  287
  309
  332
  355
  379
  405
  431
Depreciation, amort., depletion, $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
  0
Funds from operations, $m
  -2
  2
  6
  10
  15
  21
  28
  35
  44
  53
  63
  74
  86
  99
  112
  127
  141
  157
  174
  191
  208
  227
  246
  266
  287
  309
  332
  355
  379
  405
  431
Change in working capital, $m
  -1
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Cash from operations, $m
  -1
  2
  5
  10
  15
  20
  27
  35
  43
  52
  62
  73
  85
  98
  111
  125
  140
  155
  172
  189
  206
  225
  244
  264
  285
  307
  329
  353
  377
  402
  428
Maintenance CAPEX, $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
  0
New CAPEX, $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
  0
Cash from investing activities, $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
  0
Free cash flow, $m
  -1
  2
  5
  10
  15
  20
  27
  35
  43
  52
  62
  73
  85
  98
  111
  125
  140
  155
  172
  189
  206
  225
  244
  264
  285
  307
  329
  353
  377
  402
  428
Issuance/(repayment) of debt, $m
  0
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
Issuance/(repurchase) of shares, $m
  1
  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  
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
Total cash flow (excl. dividends), $m
  0
  3
  7
  11
  17
  23
  30
  38
  47
  56
  67
  78
  90
  103
  117
  131
  146
  162
  179
  196
  214
  233
  253
  273
  294
  316
  339
  363
  387
  413
  440
Retained Cash Flow (-), $m
  -1
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
Prev. year cash balance distribution, $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
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
 
  5
  7
  11
  16
  22
  29
  37
  46
  55
  66
  77
  89
  102
  115
  130
  145
  161
  177
  194
  212
  231
  251
  271
  292
  314
  337
  360
  385
  410
  437
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
 
  5
  6
  10
  13
  17
  21
  25
  29
  32
  34
  37
  38
  39
  39
  38
  37
  35
  33
  30
  27
  24
  21
  18
  15
  12
  10
  8
  6
  4
  3
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

WPCS International Incorporated (WPCS) is a low voltage contractor that specializes in the installation and service of voice and data networks, security systems, audio-visual solutions, and distributed antenna systems, and provides project management and delivers complex projects to vertical markets that include healthcare, education, transportation, energy and utilities, oil and gas, manufacturing, commercial real estate, financial and government. The Company specializes in low voltage communications, audio-visual and security contracting services, conducting business in approximately two operation centers, through its domestic subsidiaries, WPCS International-Suisun City, Inc. (Suisun City Operations) and WPCS International-Texas Operations, Inc. (Texas Operations). The Company also has strategic alliances with technology partners to provide consulting and application software development services for collaboration, visualization and unified communications.

FINANCIAL RATIOS  of  WPCS International (WPCS)

Valuation Ratios
P/E Ratio -5.6
Price to Sales 0.3
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow -5.6
Price to Free Cash Flow -5.6
Growth Rates
Sales Growth Rate 13.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0.3
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -15.4%
Ret/ On Assets - 3 Yr. Avg. -30.9%
Return On Total Capital -40%
Ret/ On T. Cap. - 3 Yr. Avg. -180%
Return On Equity -40%
Return On Equity - 3 Yr. Avg. -363.3%
Asset Turnover 2.6
Profitability Ratios
Gross Margin 23.5%
Gross Margin - 3 Yr. Avg. 20.1%
EBITDA Margin -5.9%
EBITDA Margin - 3 Yr. Avg. -20.6%
Operating Margin -5.9%
Oper. Margin - 3 Yr. Avg. -15.6%
Pre-Tax Margin -5.9%
Pre-Tax Margin - 3 Yr. Avg. -20.6%
Net Profit Margin -5.9%
Net Profit Margin - 3 Yr. Avg. -21.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

WPCS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WPCS stock intrinsic value calculation we used $17 million for the last fiscal year's total revenue generated by WPCS International. The default revenue input number comes from 2017 income statement of WPCS International. 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 WPCS stock valuation model: a) initial revenue growth rate of 33.3% 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 WPCS is calculated based on our internal credit rating of WPCS International, 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 WPCS International.
    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 WPCS stock the variable cost ratio is equal to 23.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $14 million in the base year in the intrinsic value calculation for WPCS 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 WPCS International.

Corporate tax rate of 27% is the nominal tax rate for WPCS International. 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 WPCS 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 WPCS are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in WPCS International 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 WPCS is equal to 5.9%. 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 - $3 million for WPCS International - 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 3.349 million for WPCS International 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 WPCS International at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

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▶ WPCS Closes $968,000 Financing   [Mar-31-17 09:00AM  Marketwired]
▶ WPCS Provides Stockholder Update   [09:00AM  Marketwired]
▶ WPCS Partners With Imaginet and Iluminari Tech   [Feb-23-16 09:00AM  Marketwired]
▶ WPCS Announces Launch of Texas Operations   [Jan-25-16 09:17AM  at noodls]
▶ WPCS Announces Launch of Texas Operations   [09:00AM  Marketwired]
▶ WPCS Awarded $1.9 Million of New Contracts in November   [Dec-01  09:00AM  Marketwired]
▶ WPCS Announces Plan to Expand Into Texas Market   [Nov-17  09:00AM  Marketwired]
▶ WPCS Int'l (WPCS) Stock Gains on New Contracts   [Nov-02  10:32AM  at TheStreet]
▶ WPCS Bolsters Operational Management Team   [Oct-28  09:00AM  Marketwired]
▶ WPCS Provides Stockholder Update   [Oct-08  09:00AM  Marketwired]
▶ WPCS Int'l (WPCS) Stock Jumps on New Contracts   [Sep-02  09:52AM  at TheStreet]
▶ 10-K for WPCS International, Inc.   [Jul-31  08:09PM  at Company Spotlight]
Financial statements of WPCS
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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