Intrinsic value of Aspen Technology - AZPN

Previous Close

$97.65

  Intrinsic Value

$13.40

stock screener

  Rating & Target

str. sell

-86%

Previous close

$97.65

 
Intrinsic value

$13.40

 
Up/down potential

-86%

 
Rating

str. sell

We calculate the intrinsic value of AZPN 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 7.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  2.20
  2.48
  2.73
  2.96
  3.16
  3.35
  3.51
  3.66
  3.79
  3.92
  4.02
  4.12
  4.21
  4.29
  4.36
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
Revenue, $m
  494
  506
  520
  535
  552
  570
  590
  612
  635
  660
  687
  715
  745
  777
  811
  847
  885
  925
  967
  1,012
  1,059
  1,109
  1,161
  1,216
  1,275
  1,336
  1,400
  1,468
  1,539
  1,614
Variable operating expenses, $m
  273
  279
  287
  295
  304
  314
  325
  337
  349
  362
  370
  385
  401
  418
  436
  456
  476
  498
  521
  545
  570
  597
  625
  655
  686
  719
  753
  790
  828
  868
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
  273
  279
  287
  295
  304
  314
  325
  337
  349
  362
  370
  385
  401
  418
  436
  456
  476
  498
  521
  545
  570
  597
  625
  655
  686
  719
  753
  790
  828
  868
Operating income, $m
  221
  226
  233
  240
  248
  256
  266
  276
  286
  298
  317
  330
  344
  359
  375
  391
  409
  427
  447
  467
  489
  512
  536
  562
  589
  617
  647
  678
  711
  746
EBITDA, $m
  235
  241
  247
  254
  262
  271
  281
  291
  302
  314
  327
  340
  354
  370
  386
  403
  421
  440
  460
  481
  504
  527
  552
  578
  606
  635
  666
  698
  732
  767
Interest expense (income), $m
  3
  8
  -8
  -7
  -7
  -7
  -6
  -6
  -5
  -5
  -4
  -3
  -3
  -2
  -1
  -1
  0
  1
  2
  3
  4
  5
  7
  8
  9
  10
  12
  13
  15
  17
  18
Earnings before tax, $m
  213
  234
  240
  247
  254
  262
  271
  281
  291
  302
  321
  333
  346
  360
  375
  391
  408
  425
  444
  463
  484
  506
  529
  553
  578
  605
  633
  663
  694
  727
Tax expense, $m
  58
  63
  65
  67
  69
  71
  73
  76
  79
  81
  87
  90
  93
  97
  101
  106
  110
  115
  120
  125
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
Net income, $m
  156
  171
  175
  180
  186
  192
  198
  205
  212
  220
  234
  243
  253
  263
  274
  285
  297
  310
  324
  338
  353
  369
  386
  404
  422
  442
  462
  484
  507
  531

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
  253
  260
  267
  275
  283
  293
  303
  314
  326
  339
  353
  367
  383
  399
  416
  435
  454
  475
  497
  520
  544
  569
  596
  624
  654
  686
  719
  754
  790
  829
Adjusted assets (=assets-cash), $m
  253
  260
  267
  275
  283
  293
  303
  314
  326
  339
  353
  367
  383
  399
  416
  435
  454
  475
  497
  520
  544
  569
  596
  624
  654
  686
  719
  754
  790
  829
Revenue / Adjusted assets
  1.953
  1.946
  1.948
  1.945
  1.951
  1.945
  1.947
  1.949
  1.948
  1.947
  1.946
  1.948
  1.945
  1.947
  1.950
  1.947
  1.949
  1.947
  1.946
  1.946
  1.947
  1.949
  1.948
  1.949
  1.950
  1.948
  1.947
  1.947
  1.948
  1.947
Average production assets, $m
  67
  69
  71
  73
  75
  78
  80
  83
  86
  90
  93
  97
  101
  106
  110
  115
  120
  126
  132
  138
  144
  151
  158
  165
  173
  182
  190
  200
  209
  220
Working capital, $m
  -5
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
Total debt, $m
  -141
  -135
  -129
  -122
  -114
  -105
  -96
  -86
  -75
  -64
  -52
  -39
  -25
  -10
  6
  22
  40
  58
  78
  99
  120
  143
  168
  193
  220
  248
  278
  309
  342
  377
Total liabilities, $m
  228
  234
  240
  247
  255
  264
  273
  283
  294
  305
  317
  330
  344
  359
  375
  391
  409
  427
  447
  468
  489
  512
  537
  562
  589
  617
  647
  678
  711
  746
Total equity, $m
  25
  26
  27
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  50
  52
  54
  57
  60
  62
  65
  69
  72
  75
  79
  83
Total liabilities and equity, $m
  253
  260
  267
  274
  283
  293
  303
  314
  327
  339
  352
  367
  382
  399
  417
  434
  454
  474
  497
  520
  543
  569
  597
  624
  654
  686
  719
  753
  790
  829
Debt-to-equity ratio
  -5.560
  -5.210
  -4.830
  -4.430
  -4.020
  -3.600
  -3.170
  -2.740
  -2.310
  -1.890
  -1.460
  -1.050
  -0.640
  -0.250
  0.140
  0.510
  0.880
  1.230
  1.570
  1.900
  2.210
  2.520
  2.810
  3.090
  3.360
  3.620
  3.870
  4.100
  4.330
  4.550
Adjusted equity ratio
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  156
  171
  175
  180
  186
  192
  198
  205
  212
  220
  234
  243
  253
  263
  274
  285
  297
  310
  324
  338
  353
  369
  386
  404
  422
  442
  462
  484
  507
  531
Depreciation, amort., depletion, $m
  14
  14
  14
  14
  15
  15
  15
  16
  16
  16
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
Funds from operations, $m
  170
  185
  190
  195
  200
  207
  213
  220
  228
  237
  243
  253
  263
  274
  285
  297
  310
  323
  337
  352
  368
  384
  402
  420
  439
  460
  481
  504
  528
  553
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  170
  185
  190
  195
  201
  207
  213
  221
  228
  237
  244
  253
  263
  274
  285
  297
  310
  323
  337
  352
  368
  385
  402
  421
  440
  461
  482
  505
  528
  554
Maintenance CAPEX, $m
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
Cash from investing activities, $m
  -9
  -9
  -9
  -9
  -9
  -11
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -16
  -16
  -17
  -17
  -19
  -19
  -20
  -21
  -22
  -24
  -25
  -25
  -27
  -28
  -30
  -31
Free cash flow, $m
  162
  177
  181
  186
  191
  197
  203
  210
  217
  225
  231
  240
  249
  259
  270
  281
  293
  306
  319
  333
  348
  364
  380
  397
  416
  435
  455
  476
  499
  522
Issuance/(repayment) of debt, $m
  -281
  6
  6
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  35
Issuance/(repurchase) of shares, $m
  131
  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  
  -150
  6
  6
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  35
Total cash flow (excl. dividends), $m
  11
  182
  187
  193
  199
  205
  212
  220
  228
  236
  243
  253
  263
  274
  286
  298
  311
  324
  339
  354
  370
  387
  404
  423
  443
  463
  485
  508
  532
  557
Retained Cash Flow (-), $m
  -286
  -1
  -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
Prev. year cash balance distribution, $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 flow adjustment, $m
  19
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
Cash available for distribution, $m
  -275
  182
  187
  192
  198
  204
  211
  219
  227
  235
  242
  252
  262
  273
  284
  296
  309
  322
  337
  352
  367
  384
  402
  420
  440
  460
  482
  504
  528
  553
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
  -264
  166
  162
  158
  153
  148
  143
  137
  130
  123
  115
  107
  100
  92
  83
  75
  67
  59
  52
  45
  38
  32
  26
  21
  17
  13
  10
  8
  6
  4
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Aspen Technology, Inc. is a global provider of process optimization software solutions designed to manage and optimize plant and process design, operational performance, and supply chain planning. The Company's aspenONE software and related services have been developed specifically for companies in the process industries, including the energy, chemicals, and engineering and construction industries. It operates through two segments, including subscription and software, which provides licensing of process optimization software solutions and associated support services, and services, which includes professional services and training. It has developed applications to design and optimize processes across the business areas, including engineering, manufacturing and supply chain. Its products include Aspen HYSYS, Aspen Economic Evaluation, Aspen Info Plus.21, Aspen PIMS Advanced Optimization, Aspen Collaborative Demand Manager and Aspen Supply Planner.

FINANCIAL RATIOS  of  Aspen Technology (AZPN)

Valuation Ratios
P/E Ratio 44.3
Price to Sales 14.8
Price to Book -27.5
Price to Tangible Book
Price to Cash Flow 39.4
Price to Free Cash Flow 40.1
Growth Rates
Sales Growth Rate 2.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25%
Cap. Spend. - 3 Yr. Gr. Rate -9.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity -53.6%
Interest Coverage 71
Management Effectiveness
Return On Assets 49.2%
Ret/ On Assets - 3 Yr. Avg. 40%
Return On Total Capital -578.6%
Ret/ On T. Cap. - 3 Yr. Avg. 615.2%
Return On Equity -96.4%
Return On Equity - 3 Yr. Avg. 117.4%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 90.1%
Gross Margin - 3 Yr. Avg. 89.6%
EBITDA Margin 45.3%
EBITDA Margin - 3 Yr. Avg. 44.5%
Operating Margin 43.9%
Oper. Margin - 3 Yr. Avg. 43.1%
Pre-Tax Margin 43.5%
Pre-Tax Margin - 3 Yr. Avg. 43%
Net Profit Margin 33.5%
Net Profit Margin - 3 Yr. Avg. 30%
Effective Tax Rate 22.9%
Eff/ Tax Rate - 3 Yr. Avg. 30.2%
Payout Ratio 0%

AZPN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AZPN stock intrinsic value calculation we used $483 million for the last fiscal year's total revenue generated by Aspen Technology. The default revenue input number comes from 2017 income statement of Aspen Technology. 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 AZPN stock valuation model: a) initial revenue growth rate of 2.2% 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 AZPN is calculated based on our internal credit rating of Aspen Technology, 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 Aspen Technology.
    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 AZPN stock the variable cost ratio is equal to 55.3%.

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 AZPN 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 Aspen Technology.

Corporate tax rate of 27% is the nominal tax rate for Aspen Technology. 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 AZPN stock is equal to 3.9%.

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 AZPN are equal to 13.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Aspen Technology 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 AZPN is equal to -1.1%. 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 - $-261 million for Aspen Technology - 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 76 million for Aspen Technology 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 Aspen Technology at the current share price and the inputted number of shares is $7.4 billion.

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▶ Stocks Showing Rising Market Leadership: Aspen Technology Earns 83 RS Rating   [Jan-09-18 03:00AM  Investor's Business Daily]
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▶ Stocks With Rising Relative Strength: Aspen Technology   [03:00AM  Investor's Business Daily]
▶ Aspen Technology Sees IBD RS Rating Climb To 74   [03:00AM  Investor's Business Daily]
▶ Aspen Technology tops Street 1Q forecasts   [Oct-26-17 05:05PM  Associated Press]
▶ Should You Be Holding Aspen Technology Inc (AZPN) Right Now?   [Oct-02-17 03:02PM  Simply Wall St.]
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