Intrinsic value of Allot Communications - ALLT

Previous Close

$5.42

  Intrinsic Value

$5.27

stock screener

  Rating & Target

hold

-3%

Previous close

$5.42

 
Intrinsic value

$5.27

 
Up/down potential

-3%

 
Rating

hold

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

We calculate the intrinsic value of ALLT 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 2012), $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 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2012(a)
   2013
   2014
   2015
   2016
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  34.62
  18.20
  16.88
  15.69
  14.62
  13.66
  12.79
  12.02
  11.31
  10.68
  10.11
  9.60
  9.14
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
Revenue, $m
  105
  124
  145
  168
  192
  219
  247
  276
  307
  340
  375
  411
  448
  487
  528
  571
  615
  660
  708
  757
  809
  862
  918
  975
  1,036
  1,098
  1,164
  1,232
  1,303
  1,377
  1,454
Variable operating expenses, $m
 
  109
  127
  147
  168
  190
  214
  239
  266
  294
  324
  351
  383
  417
  451
  488
  525
  564
  605
  647
  691
  737
  784
  834
  885
  939
  994
  1,053
  1,113
  1,177
  1,243
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
  114
  109
  127
  147
  168
  190
  214
  239
  266
  294
  324
  351
  383
  417
  451
  488
  525
  564
  605
  647
  691
  737
  784
  834
  885
  939
  994
  1,053
  1,113
  1,177
  1,243
Operating income, $m
  -9
  15
  18
  21
  25
  28
  33
  37
  41
  46
  51
  60
  65
  71
  77
  83
  89
  96
  103
  110
  118
  125
  133
  142
  151
  160
  169
  179
  189
  200
  211
EBITDA, $m
  -4
  19
  22
  25
  29
  33
  37
  41
  46
  51
  56
  62
  67
  73
  79
  86
  92
  99
  106
  114
  121
  130
  138
  147
  156
  165
  175
  185
  196
  207
  218
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  12
  13
  14
  15
  16
  18
  19
  20
  21
  22
Earnings before tax, $m
  -8
  15
  17
  20
  24
  27
  31
  34
  38
  43
  47
  55
  60
  65
  70
  75
  81
  87
  93
  99
  106
  113
  120
  127
  135
  143
  152
  160
  170
  179
  189
Tax expense, $m
  -1
  4
  5
  6
  6
  7
  8
  9
  10
  12
  13
  15
  16
  18
  19
  20
  22
  23
  25
  27
  29
  30
  32
  34
  37
  39
  41
  43
  46
  48
  51
Net income, $m
  -7
  11
  13
  15
  17
  20
  22
  25
  28
  31
  34
  40
  44
  47
  51
  55
  59
  64
  68
  73
  77
  82
  88
  93
  99
  105
  111
  117
  124
  131
  138

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  143
  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
  222
  93
  109
  126
  145
  165
  186
  208
  231
  256
  282
  309
  337
  367
  397
  429
  462
  497
  533
  570
  608
  649
  690
  734
  779
  826
  876
  927
  980
  1,036
  1,094
Adjusted assets (=assets-cash), $m
  79
  93
  109
  126
  145
  165
  186
  208
  231
  256
  282
  309
  337
  367
  397
  429
  462
  497
  533
  570
  608
  649
  690
  734
  779
  826
  876
  927
  980
  1,036
  1,094
Revenue / Adjusted assets
  1.329
  1.333
  1.330
  1.333
  1.324
  1.327
  1.328
  1.327
  1.329
  1.328
  1.330
  1.330
  1.329
  1.327
  1.330
  1.331
  1.331
  1.328
  1.328
  1.328
  1.331
  1.328
  1.330
  1.328
  1.330
  1.329
  1.329
  1.329
  1.330
  1.329
  1.329
Average production assets, $m
  3
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
Working capital, $m
  132
  -13
  -15
  -18
  -20
  -23
  -26
  -29
  -32
  -36
  -39
  -43
  -47
  -51
  -55
  -60
  -65
  -69
  -74
  -80
  -85
  -91
  -96
  -102
  -109
  -115
  -122
  -129
  -137
  -145
  -153
Total debt, $m
  0
  10
  20
  32
  44
  57
  72
  86
  102
  119
  136
  154
  173
  193
  214
  235
  257
  280
  304
  329
  355
  382
  410
  439
  470
  502
  534
  569
  605
  642
  681
Total liabilities, $m
  53
  63
  73
  85
  97
  110
  125
  139
  155
  172
  189
  207
  226
  246
  267
  288
  310
  333
  357
  382
  408
  435
  463
  492
  523
  555
  587
  622
  658
  695
  734
Total equity, $m
  169
  31
  36
  42
  48
  54
  61
  68
  76
  84
  93
  102
  111
  121
  131
  141
  152
  163
  175
  187
  200
  213
  227
  241
  256
  272
  288
  305
  323
  341
  360
Total liabilities and equity, $m
  222
  94
  109
  127
  145
  164
  186
  207
  231
  256
  282
  309
  337
  367
  398
  429
  462
  496
  532
  569
  608
  648
  690
  733
  779
  827
  875
  927
  981
  1,036
  1,094
Debt-to-equity ratio
  0.000
  0.310
  0.560
  0.760
  0.930
  1.060
  1.170
  1.260
  1.340
  1.410
  1.470
  1.520
  1.560
  1.600
  1.630
  1.660
  1.690
  1.720
  1.740
  1.760
  1.770
  1.790
  1.810
  1.820
  1.830
  1.840
  1.860
  1.870
  1.880
  1.880
  1.890
Adjusted equity ratio
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -7
  11
  13
  15
  17
  20
  22
  25
  28
  31
  34
  40
  44
  47
  51
  55
  59
  64
  68
  73
  77
  82
  88
  93
  99
  105
  111
  117
  124
  131
  138
Depreciation, amort., depletion, $m
  5
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
Funds from operations, $m
  15
  15
  17
  19
  21
  24
  27
  30
  33
  36
  39
  42
  46
  50
  54
  58
  62
  67
  71
  76
  81
  87
  92
  98
  104
  110
  116
  123
  130
  137
  145
Change in working capital, $m
  6
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
Cash from operations, $m
  9
  17
  19
  21
  24
  27
  30
  33
  36
  39
  43
  46
  50
  54
  58
  62
  67
  72
  76
  81
  87
  92
  98
  104
  110
  116
  123
  130
  137
  145
  153
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
New CAPEX, $m
  -4
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
Cash from investing activities, $m
  -79
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -8
  -9
Free cash flow, $m
  -70
  16
  18
  20
  23
  25
  28
  31
  34
  37
  41
  43
  47
  51
  55
  59
  63
  67
  72
  77
  82
  87
  92
  98
  104
  110
  116
  123
  130
  137
  145
Issuance/(repayment) of debt, $m
  -2
  10
  11
  11
  12
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
Issuance/(repurchase) of shares, $m
  6
  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  
  4
  10
  11
  11
  12
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
Total cash flow (excl. dividends), $m
  -67
  25
  28
  32
  35
  38
  42
  46
  50
  54
  58
  61
  66
  70
  75
  80
  85
  91
  96
  102
  108
  114
  120
  127
  134
  142
  149
  157
  166
  175
  184
Retained Cash Flow (-), $m
  -6
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
Prev. year cash balance distribution, $m
 
  143
  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
 
  164
  23
  26
  29
  32
  35
  39
  42
  46
  49
  52
  57
  61
  65
  70
  74
  79
  84
  90
  95
  101
  107
  113
  119
  126
  133
  140
  148
  156
  165
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
 
  157
  21
  23
  24
  25
  26
  26
  26
  26
  26
  25
  24
  23
  22
  20
  19
  17
  16
  14
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Allot Communications Ltd. (Allot) is a global provider of security and monetization solutions that enable mobile, fixed and enterprise service providers to protect and personalize the digital experience. The Company has a global and diverse customer base composed of mobile and fixed broadband service providers, cable operators, private networks, data centers, governments and enterprises, such as financial and educational institutions. Its integrated solutions include analytics, traffic management, video caching and optimization, policy control and charging, service enablement and security solutions. The Allot Service Gateway platforms (including Allot Service Gateway Tera, and Allot Service Gateway 9500), as well as Allot NetEnforcer platforms are based on technology, designed for in-line deployment in a range of networks. Allot service Gateway platforms are designed for deployment both on traditional and virtualized network access infrastructure.

FINANCIAL RATIOS  of  Allot Communications (ALLT)

Valuation Ratios
P/E Ratio -24
Price to Sales 1.6
Price to Book 1
Price to Tangible Book
Price to Cash Flow 18.6
Price to Free Cash Flow 33.5
Growth Rates
Sales Growth Rate 34.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate 0%
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 -3.3%
Ret/ On Assets - 3 Yr. Avg. -1.3%
Return On Total Capital -4.2%
Ret/ On T. Cap. - 3 Yr. Avg. -2%
Return On Equity -4.2%
Return On Equity - 3 Yr. Avg. -2%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 55.2%
Gross Margin - 3 Yr. Avg. 66.3%
EBITDA Margin -2.9%
EBITDA Margin - 3 Yr. Avg. 2.4%
Operating Margin -8.6%
Oper. Margin - 3 Yr. Avg. -1.9%
Pre-Tax Margin -7.6%
Pre-Tax Margin - 3 Yr. Avg. -2.2%
Net Profit Margin -6.7%
Net Profit Margin - 3 Yr. Avg. -1.9%
Effective Tax Rate 12.5%
Eff/ Tax Rate - 3 Yr. Avg. 4.2%
Payout Ratio 0%

ALLT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALLT stock intrinsic value calculation we used $105 million for the last fiscal year's total revenue generated by Allot Communications. The default revenue input number comes from 2012 income statement of Allot 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 ALLT stock valuation model: a) initial revenue growth rate of 18.2% 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 ALLT is calculated based on our internal credit rating of Allot 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 Allot 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 ALLT stock the variable cost ratio is equal to 88.6%.

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 ALLT 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 Allot Communications.

Corporate tax rate of 27% is the nominal tax rate for Allot 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 ALLT 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 ALLT are equal to 2.4%.

Life of production assets of 4.1 years is the average useful life of capital assets used in Allot 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 ALLT is equal to -10.5%. 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 - $169 million for Allot 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 118.351 million for Allot 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 Allot Communications at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Allot Communications Ltd. to Host Earnings Call   [Nov-07-17 06:30AM  ACCESSWIRE]
▶ Allot Communications reports 3Q loss   [05:29AM  Associated Press]
▶ Allot Communications reports 2Q loss   [Aug-01-17 10:57PM  Associated Press]
▶ New Strong Sell Stocks for May 17th   [May-17-17 10:03AM  Zacks]
▶ Allot Communications reports 1Q loss   [05:14AM  Associated Press]
▶ Allot Communications beats 4Q profit forecasts   [Feb-07-17 06:04AM  Associated Press]
▶ How Allot Communications Ltd. (ALLT) Stacks Up Against Its Peers   [Dec-12-16 06:16PM  at Insider Monkey]
▶ Allot Communications reports 2Q loss   [Aug-02-16 05:02AM  AP]
Financial statements of ALLT
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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