Intrinsic value of Alpha&Omega Semiconductor - AOSL

Previous Close

$17.20

  Intrinsic Value

$17.77

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  Rating & Target

hold

+3%

Previous close

$17.20

 
Intrinsic value

$17.77

 
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 AOSL 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 0.4

 

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, %
  13.99
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
Revenue, $m
  383
  412
  443
  475
  508
  542
  578
  615
  654
  695
  737
  780
  826
  873
  923
  975
  1,029
  1,086
  1,145
  1,207
  1,272
  1,339
  1,410
  1,485
  1,562
  1,644
  1,729
  1,819
  1,912
  2,011
  2,114
Variable operating expenses, $m
 
  316
  339
  363
  389
  415
  442
  471
  500
  531
  563
  597
  632
  668
  706
  746
  787
  831
  876
  923
  973
  1,025
  1,079
  1,136
  1,195
  1,258
  1,323
  1,391
  1,463
  1,538
  1,617
Fixed operating expenses, $m
 
  81
  83
  85
  87
  89
  92
  94
  96
  99
  101
  104
  106
  109
  112
  114
  117
  120
  123
  126
  129
  133
  136
  139
  143
  146
  150
  154
  158
  162
  166
Total operating expenses, $m
  370
  397
  422
  448
  476
  504
  534
  565
  596
  630
  664
  701
  738
  777
  818
  860
  904
  951
  999
  1,049
  1,102
  1,158
  1,215
  1,275
  1,338
  1,404
  1,473
  1,545
  1,621
  1,700
  1,783
Operating income, $m
  13
  16
  21
  27
  32
  38
  44
  51
  57
  65
  72
  80
  88
  96
  105
  115
  125
  135
  146
  157
  169
  182
  195
  209
  224
  240
  256
  274
  292
  311
  331
EBITDA, $m
  40
  44
  52
  59
  67
  76
  84
  93
  103
  112
  123
  134
  145
  157
  169
  182
  196
  210
  225
  241
  257
  274
  293
  312
  332
  353
  376
  399
  424
  450
  477
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
Earnings before tax, $m
  13
  16
  21
  26
  31
  37
  42
  48
  55
  61
  68
  76
  83
  91
  100
  108
  118
  127
  138
  149
  160
  172
  184
  198
  212
  226
  242
  258
  275
  293
  312
Tax expense, $m
  4
  4
  6
  7
  8
  10
  11
  13
  15
  17
  18
  20
  22
  25
  27
  29
  32
  34
  37
  40
  43
  46
  50
  53
  57
  61
  65
  70
  74
  79
  84
Net income, $m
  14
  12
  15
  19
  23
  27
  31
  35
  40
  45
  50
  55
  61
  67
  73
  79
  86
  93
  101
  108
  117
  125
  135
  144
  154
  165
  176
  188
  201
  214
  228

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  116
  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
  398
  304
  326
  350
  374
  399
  426
  453
  482
  511
  542
  575
  608
  643
  680
  718
  758
  800
  843
  889
  936
  986
  1,038
  1,093
  1,150
  1,210
  1,273
  1,339
  1,408
  1,481
  1,557
Adjusted assets (=assets-cash), $m
  282
  304
  326
  350
  374
  399
  426
  453
  482
  511
  542
  575
  608
  643
  680
  718
  758
  800
  843
  889
  936
  986
  1,038
  1,093
  1,150
  1,210
  1,273
  1,339
  1,408
  1,481
  1,557
Revenue / Adjusted assets
  1.358
  1.355
  1.359
  1.357
  1.358
  1.358
  1.357
  1.358
  1.357
  1.360
  1.360
  1.357
  1.359
  1.358
  1.357
  1.358
  1.358
  1.358
  1.358
  1.358
  1.359
  1.358
  1.358
  1.359
  1.358
  1.359
  1.358
  1.358
  1.358
  1.358
  1.358
Average production assets, $m
  132
  142
  153
  164
  175
  187
  200
  212
  226
  240
  254
  269
  285
  301
  318
  336
  355
  375
  395
  416
  439
  462
  487
  512
  539
  567
  597
  627
  660
  694
  729
Working capital, $m
  130
  16
  17
  19
  20
  21
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  64
  67
  71
  75
  78
  82
Total debt, $m
  2
  11
  21
  31
  42
  54
  65
  78
  90
  104
  117
  132
  147
  163
  179
  196
  214
  232
  252
  272
  294
  316
  339
  364
  389
  416
  444
  474
  504
  537
  571
Total liabilities, $m
  128
  136
  146
  156
  167
  179
  190
  203
  215
  229
  242
  257
  272
  288
  304
  321
  339
  357
  377
  397
  419
  441
  464
  489
  514
  541
  569
  599
  629
  662
  696
Total equity, $m
  271
  168
  180
  193
  207
  221
  235
  251
  266
  283
  300
  318
  336
  356
  376
  397
  419
  442
  466
  491
  518
  545
  574
  605
  636
  669
  704
  741
  779
  819
  861
Total liabilities and equity, $m
  399
  304
  326
  349
  374
  400
  425
  454
  481
  512
  542
  575
  608
  644
  680
  718
  758
  799
  843
  888
  937
  986
  1,038
  1,094
  1,150
  1,210
  1,273
  1,340
  1,408
  1,481
  1,557
Debt-to-equity ratio
  0.007
  0.060
  0.120
  0.160
  0.200
  0.240
  0.280
  0.310
  0.340
  0.370
  0.390
  0.410
  0.440
  0.460
  0.480
  0.490
  0.510
  0.530
  0.540
  0.550
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
  0.660
Adjusted equity ratio
  0.550
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  14
  12
  15
  19
  23
  27
  31
  35
  40
  45
  50
  55
  61
  67
  73
  79
  86
  93
  101
  108
  117
  125
  135
  144
  154
  165
  176
  188
  201
  214
  228
Depreciation, amort., depletion, $m
  27
  28
  31
  33
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  88
  92
  97
  102
  108
  113
  119
  125
  132
  139
  146
Funds from operations, $m
  36
  40
  46
  52
  58
  64
  71
  78
  85
  93
  101
  109
  118
  127
  136
  146
  157
  168
  180
  192
  204
  218
  232
  247
  262
  279
  296
  314
  333
  353
  374
Change in working capital, $m
  -7
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
Cash from operations, $m
  43
  39
  45
  50
  56
  63
  69
  76
  84
  91
  99
  107
  116
  125
  134
  144
  155
  166
  177
  189
  202
  215
  229
  244
  259
  275
  292
  310
  329
  349
  370
Maintenance CAPEX, $m
  0
  -26
  -28
  -31
  -33
  -35
  -37
  -40
  -42
  -45
  -48
  -51
  -54
  -57
  -60
  -64
  -67
  -71
  -75
  -79
  -83
  -88
  -92
  -97
  -102
  -108
  -113
  -119
  -125
  -132
  -139
New CAPEX, $m
  -56
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
Cash from investing activities, $m
  -56
  -36
  -39
  -42
  -44
  -47
  -49
  -53
  -55
  -59
  -62
  -66
  -70
  -73
  -77
  -82
  -86
  -91
  -95
  -100
  -105
  -111
  -116
  -123
  -129
  -136
  -142
  -150
  -157
  -166
  -175
Free cash flow, $m
  -13
  2
  6
  9
  12
  16
  20
  24
  28
  32
  37
  41
  46
  52
  57
  63
  69
  75
  82
  89
  96
  104
  112
  121
  130
  139
  150
  160
  171
  183
  195
Issuance/(repayment) of debt, $m
  -1
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
Issuance/(repurchase) of shares, $m
  11
  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  
  41
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
Total cash flow (excl. dividends), $m
  28
  12
  16
  19
  23
  27
  31
  36
  41
  45
  50
  56
  61
  67
  73
  80
  87
  94
  101
  109
  118
  126
  136
  145
  156
  166
  178
  190
  202
  215
  229
Retained Cash Flow (-), $m
  -29
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
Prev. year cash balance distribution, $m
 
  115
  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
 
  115
  3
  6
  10
  13
  17
  21
  25
  29
  33
  38
  43
  48
  53
  59
  65
  71
  77
  84
  91
  99
  107
  115
  124
  133
  143
  153
  164
  175
  187
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
 
  111
  3
  6
  8
  10
  12
  14
  15
  17
  17
  18
  18
  18
  18
  17
  16
  15
  14
  13
  12
  10
  9
  8
  6
  5
  4
  3
  3
  2
  1
Current shareholders' claim on cash, %
  100
  99.9
  99.9
  99.9
  99.9
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Alpha and Omega Semiconductor Limited is a designer, developer and global supplier of power semiconductors. The Company's portfolio of power semiconductors includes approximately 1,600 products, as of June 30, 2016. The Company's product portfolio consists of two categories: power discretes and power integrated circuits (ICs). The Company's portfolio of products focuses high-volume applications, including personal computers, flat panel televisions, light-emitting diode (LED) lighting, smart phones, battery packs, consumer and industrial motor controls and power supplies for television, computers, servers and telecommunications equipment. The Company sells its products primarily to distributors in the Asia Pacific region, who in turn sell these products to end customers. The Company conducts its operations primarily in the United States, Hong Kong, China, Taiwan, Korea and Japan. Its products are applicable in desktop and tablet personal computers, flat panel displays and televisions.

FINANCIAL RATIOS  of  Alpha&Omega Semiconductor (AOSL)

Valuation Ratios
P/E Ratio 29.5
Price to Sales 1.1
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 9.6
Price to Free Cash Flow -31.7
Growth Rates
Sales Growth Rate 14%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 154.5%
Cap. Spend. - 3 Yr. Gr. Rate 44.1%
Financial Strength
Quick Ratio 116
Current Ratio 0.1
LT Debt to Equity 0.4%
Total Debt to Equity 0.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 0.3%
Return On Total Capital 5.4%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity 5.5%
Return On Equity - 3 Yr. Avg. 0.5%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 24%
Gross Margin - 3 Yr. Avg. 20.7%
EBITDA Margin 10.4%
EBITDA Margin - 3 Yr. Avg. 8.7%
Operating Margin 3.4%
Oper. Margin - 3 Yr. Avg. 0.9%
Pre-Tax Margin 3.4%
Pre-Tax Margin - 3 Yr. Avg. 0.8%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. 0.1%
Effective Tax Rate 30.8%
Eff/ Tax Rate - 3 Yr. Avg. 110.3%
Payout Ratio 0%

AOSL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AOSL stock intrinsic value calculation we used $383 million for the last fiscal year's total revenue generated by Alpha&Omega Semiconductor. The default revenue input number comes from 2017 income statement of Alpha&Omega Semiconductor. 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 AOSL stock valuation model: a) initial revenue growth rate of 7.7% 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 AOSL is calculated based on our internal credit rating of Alpha&Omega Semiconductor, 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 Alpha&Omega Semiconductor.
    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 AOSL stock the variable cost ratio is equal to 76.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $79 million in the base year in the intrinsic value calculation for AOSL 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 Alpha&Omega Semiconductor.

Corporate tax rate of 27% is the nominal tax rate for Alpha&Omega Semiconductor. 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 AOSL 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 AOSL are equal to 34.5%.

Life of production assets of 4.9 years is the average useful life of capital assets used in Alpha&Omega Semiconductor 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 AOSL is equal to 3.9%. 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 - $271 million for Alpha&Omega Semiconductor - 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 24.038 million for Alpha&Omega Semiconductor 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 Alpha&Omega Semiconductor at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Alpha and Omega misses 1Q profit forecasts   [Nov-06-17 05:37AM  Associated Press]
▶ Alpha and Omega beats Street 4Q forecasts   [Aug-09-17 10:22PM  Associated Press]
▶ New Strong Buy Stocks for May 26th   [May-26-17 11:07AM  Zacks]
▶ New Strong Buy Stocks for May 17th   [May-17-17 10:24AM  Zacks]
▶ Alpha and Omega beats Street 3Q forecasts   [May-03-17 06:39PM  Associated Press]
▶ Alpha and Omega tops Street 2Q forecasts   [Feb-08-17 06:11PM  Associated Press]
▶ 3 Small Cap Tech Stocks That Doubled in 2016   [Dec-18-16 12:35PM  at Motley Fool]
Financial statements of AOSL
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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