Intrinsic value of Acacia Communications - ACIA

Previous Close

$43.78

  Intrinsic Value

$15.74

stock screener

  Rating & Target

str. sell

-64%

Previous close

$43.78

 
Intrinsic value

$15.74

 
Up/down potential

-64%

 
Rating

str. sell

We calculate the intrinsic value of ACIA 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 0001), $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 1.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  393
  402
  412
  424
  437
  451
  466
  483
  501
  520
  540
  562
  586
  611
  637
  665
  694
  726
  759
  793
  830
  869
  910
  953
  998
  1,046
  1,096
  1,149
  1,205
  1,263
Variable operating expenses, $m
  59
  61
  62
  64
  66
  68
  70
  73
  76
  78
  82
  85
  88
  92
  96
  100
  105
  110
  115
  120
  125
  131
  137
  144
  151
  158
  166
  174
  182
  191
Fixed operating expenses, $m
  301
  308
  315
  322
  329
  336
  344
  351
  359
  367
  375
  383
  391
  400
  409
  418
  427
  436
  446
  456
  466
  476
  487
  497
  508
  519
  531
  543
  554
  567
Total operating expenses, $m
  360
  369
  377
  386
  395
  404
  414
  424
  435
  445
  457
  468
  479
  492
  505
  518
  532
  546
  561
  576
  591
  607
  624
  641
  659
  677
  697
  717
  736
  758
Operating income, $m
  32
  33
  35
  38
  42
  47
  52
  59
  66
  75
  84
  94
  106
  118
  132
  147
  162
  180
  198
  218
  239
  262
  286
  312
  339
  369
  400
  433
  468
  506
EBITDA, $m
  37
  39
  41
  44
  48
  53
  59
  65
  73
  82
  91
  102
  114
  127
  141
  156
  172
  190
  208
  229
  250
  274
  298
  325
  353
  383
  415
  449
  485
  523
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
Earnings before tax, $m
  32
  33
  35
  38
  41
  46
  51
  57
  65
  73
  82
  92
  103
  115
  128
  143
  158
  175
  193
  212
  233
  255
  278
  304
  331
  359
  390
  422
  457
  493
Tax expense, $m
  9
  9
  9
  10
  11
  12
  14
  16
  17
  20
  22
  25
  28
  31
  35
  39
  43
  47
  52
  57
  63
  69
  75
  82
  89
  97
  105
  114
  123
  133
Net income, $m
  23
  24
  25
  27
  30
  33
  37
  42
  47
  53
  60
  67
  75
  84
  94
  104
  115
  128
  141
  155
  170
  186
  203
  222
  241
  262
  285
  308
  333
  360

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  426
  436
  447
  460
  474
  489
  506
  524
  543
  564
  586
  610
  635
  662
  691
  721
  753
  787
  823
  861
  900
  942
  987
  1,034
  1,083
  1,135
  1,189
  1,246
  1,307
  1,370
Adjusted assets (=assets-cash), $m
  426
  436
  447
  460
  474
  489
  506
  524
  543
  564
  586
  610
  635
  662
  691
  721
  753
  787
  823
  861
  900
  942
  987
  1,034
  1,083
  1,135
  1,189
  1,246
  1,307
  1,370
Revenue / Adjusted assets
  0.923
  0.922
  0.922
  0.922
  0.922
  0.922
  0.921
  0.922
  0.923
  0.922
  0.922
  0.921
  0.923
  0.923
  0.922
  0.922
  0.922
  0.922
  0.922
  0.921
  0.922
  0.923
  0.922
  0.922
  0.922
  0.922
  0.922
  0.922
  0.922
  0.922
Average production assets, $m
  27
  28
  28
  29
  30
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
  79
  83
  87
Working capital, $m
  84
  86
  88
  90
  93
  96
  99
  103
  107
  111
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
  269
Total debt, $m
  2
  5
  8
  11
  15
  19
  23
  28
  33
  39
  44
  51
  57
  64
  72
  80
  88
  97
  106
  116
  127
  138
  149
  162
  174
  188
  202
  217
  233
  250
Total liabilities, $m
  112
  114
  117
  120
  124
  128
  132
  137
  142
  148
  154
  160
  166
  173
  181
  189
  197
  206
  216
  225
  236
  247
  259
  271
  284
  297
  312
  327
  342
  359
Total equity, $m
  314
  322
  330
  339
  350
  361
  373
  386
  401
  416
  433
  450
  469
  489
  510
  532
  556
  581
  607
  635
  665
  696
  728
  763
  799
  837
  878
  920
  964
  1,011
Total liabilities and equity, $m
  426
  436
  447
  459
  474
  489
  505
  523
  543
  564
  587
  610
  635
  662
  691
  721
  753
  787
  823
  860
  901
  943
  987
  1,034
  1,083
  1,134
  1,190
  1,247
  1,306
  1,370
Debt-to-equity ratio
  0.010
  0.020
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.180
  0.190
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.240
  0.240
  0.250
Adjusted equity ratio
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  23
  24
  25
  27
  30
  33
  37
  42
  47
  53
  60
  67
  75
  84
  94
  104
  115
  128
  141
  155
  170
  186
  203
  222
  241
  262
  285
  308
  333
  360
Depreciation, amort., depletion, $m
  5
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
Funds from operations, $m
  29
  30
  31
  33
  36
  40
  44
  49
  54
  60
  67
  75
  83
  93
  102
  113
  125
  138
  151
  166
  181
  198
  216
  235
  255
  277
  300
  324
  350
  378
Change in working capital, $m
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
Cash from operations, $m
  27
  28
  29
  31
  33
  37
  41
  45
  50
  56
  63
  70
  78
  87
  97
  107
  119
  131
  144
  158
  173
  190
  207
  226
  245
  267
  289
  313
  338
  365
Maintenance CAPEX, $m
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
New CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
Cash from investing activities, $m
  -5
  -6
  -7
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -14
  -14
  -15
  -16
  -16
  -17
  -17
  -19
  -20
  -21
Free cash flow, $m
  21
  22
  23
  24
  27
  30
  33
  38
  42
  48
  54
  61
  69
  77
  87
  97
  107
  119
  132
  145
  160
  176
  192
  210
  229
  249
  271
  294
  318
  344
Issuance/(repayment) of debt, $m
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
Total cash flow (excl. dividends), $m
  24
  24
  26
  28
  30
  34
  38
  42
  48
  53
  60
  68
  76
  84
  94
  105
  116
  128
  141
  155
  170
  187
  204
  222
  242
  263
  285
  309
  334
  361
Retained Cash Flow (-), $m
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -45
  -47
Prev. year cash balance distribution, $m
  194
  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
  211
  17
  17
  18
  20
  22
  25
  29
  33
  38
  44
  50
  57
  65
  73
  82
  92
  103
  115
  127
  141
  156
  171
  188
  206
  225
  245
  267
  290
  314
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
  203
  16
  15
  15
  16
  16
  17
  18
  19
  20
  21
  21
  22
  22
  21
  21
  20
  19
  18
  16
  15
  13
  11
  10
  8
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  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

Acacia Communications, Inc. provides high-speed coherent interconnect products. The Company's products include a series of low-power coherent digital signal processor application-specific integrated circuits (DSP ASICs), and silicon photonic integrated circuits (silicon PICs), which it has integrated into families of optical interconnect modules with transmission speeds ranging from 100 to 400 gigabits per second (Gbps) for use in long-haul, metro and inter-data center markets. The Company is also developing optical interconnect modules that will enable transmission speeds of one terabit (1,000 gigabits) per second and above. The Company's modules perform a majority of the digital signal processing and optical functions in optical interconnects. The Company's coherent DSP ASICs are manufactured using complementary metal oxide semiconductor (CMOS), and its silicon PICs are manufactured using a CMOS-compatible process.

FINANCIAL RATIOS  of  Acacia Communications (ACIA)

Valuation Ratios
P/E Ratio 12.6
Price to Sales 3.5
Price to Book 3.8
Price to Tangible Book
Price to Cash Flow 16.5
Price to Free Cash Flow 19.8
Growth Rates
Sales Growth Rate 100%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 41.7%
Cap. Spend. - 3 Yr. Gr. Rate 41.5%
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 40.7%
Ret/ On Assets - 3 Yr. Avg. 35.2%
Return On Total Capital 51.4%
Ret/ On T. Cap. - 3 Yr. Avg. 53.6%
Return On Equity 51.4%
Return On Equity - 3 Yr. Avg. 56.2%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 46.2%
Gross Margin - 3 Yr. Avg. 40.6%
EBITDA Margin 25.9%
EBITDA Margin - 3 Yr. Avg. 19.3%
Operating Margin 24.5%
Oper. Margin - 3 Yr. Avg. 17.9%
Pre-Tax Margin 24.1%
Pre-Tax Margin - 3 Yr. Avg. 17.3%
Net Profit Margin 27.6%
Net Profit Margin - 3 Yr. Avg. 18.1%
Effective Tax Rate -14.8%
Eff/ Tax Rate - 3 Yr. Avg. -1.6%
Payout Ratio 0%

ACIA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ACIA stock intrinsic value calculation we used $385.166 million for the last fiscal year's total revenue generated by Acacia Communications. The default revenue input number comes from 0001 income statement of Acacia Communications. 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 ACIA stock valuation model: a) initial revenue growth rate of 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 ACIA is calculated based on our internal credit rating of Acacia Communications, 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 Acacia Communications.
    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 ACIA stock the variable cost ratio is equal to 15.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $295 million in the base year in the intrinsic value calculation for ACIA 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 5.4% for Acacia Communications.

Corporate tax rate of 27% is the nominal tax rate for Acacia Communications. 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 ACIA 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 ACIA are equal to 6.9%.

Life of production assets of 2.2 years is the average useful life of capital assets used in Acacia Communications 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 ACIA is equal to 21.3%. 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 - $502.05 million for Acacia Communications - 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 40.55 million for Acacia Communications 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 Acacia Communications at the current share price and the inputted number of shares is $1.8 billion.

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COMPANY NEWS

▶ Acacia Communications to Present at November Conferences   [Nov-06-18 04:05PM  GlobeNewswire]
▶ IBD Stock Of The Day: Ciena Builds Relative Strength Amid Tech Woes   [Oct-18-18 04:47PM  Investor's Business Daily]
▶ Why Shares of Acacia Communications Have Jumped Today   [Aug-03-18 11:28AM  Motley Fool]
▶ Acacia stock surges on strong third-quarter outlook   [Aug-02-18 04:44PM  MarketWatch]
▶ Trade of the Day: Acacia Communications, Inc. (ACIA)   [Jul-27-18 09:23AM  InvestorPlace]
▶ U.S. lifts ban on suppliers selling to China's ZTE   [Jul-13-18 12:55PM  Reuters]
▶ Bear of the Day: Acacia Communications (ACIA)   [May-30-18 07:01AM  Zacks]
▶ Don't Chase Acacia Communications' Latest Rally   [May-15-18 03:30PM  Motley Fool]
▶ Tech companies climb as Trump lobbies for China's ZTE   [May-14-18 04:55PM  Associated Press]
▶ Why Acacia Communications, Inc. Fell 27% in April   [May-10-18 05:29PM  Motley Fool]
▶ Acacia Communications to Present at May Conferences   [May-04-18 07:00AM  GlobeNewswire]
▶ Acacia Communications Reports First Quarter 2018 Results   [May-03-18 04:10PM  GlobeNewswire]
▶ Acacia Communications Announces Stock Repurchase Program   [May-02-18 06:35PM  GlobeNewswire]
▶ 5 Lessons From Acacia Communications' Downfall   [Apr-25-18 09:41AM  Motley Fool]
▶ Can Acacia Communications Survive the ZTE Disaster?   [Apr-20-18 10:11AM  Motley Fool]
▶ Boycotts 'China's ultimate weapon' in trade war   [Apr-19-18 07:11PM  CNBC Videos]
▶ Cramer Remix: Wall Streets big problem with IBMs stock   [Apr-18-18 07:01PM  CNBC Videos]

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