Intrinsic value of BioSpecifics Technologies - BSTC

Previous Close

$47.46

  Intrinsic Value

$62.09

stock screener

  Rating & Target

buy

+31%

  Value-price divergence*

-18%

Previous close

$47.46

 
Intrinsic value

$62.09

 
Up/down potential

+31%

 
Rating

buy

 
Value-price divergence*

-18%

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

We calculate the intrinsic value of BSTC 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 2016), $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 0.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   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
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.04
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  26
  30
  35
  40
  46
  51
  57
  64
  71
  78
  85
  93
  101
  109
  118
  127
  137
  146
  156
  167
  178
  189
  201
  214
  227
  240
  254
  269
  284
  300
  317
Variable operating expenses, $m
 
  10
  12
  14
  16
  18
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  47
  51
  54
  58
  62
  66
  70
  74
  78
  83
  88
  93
  98
  104
  110
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
  9
  10
  12
  14
  16
  18
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  47
  51
  54
  58
  62
  66
  70
  74
  78
  83
  88
  93
  98
  104
  110
Operating income, $m
  17
  20
  23
  26
  30
  34
  38
  42
  46
  51
  56
  61
  66
  72
  77
  83
  89
  96
  102
  109
  116
  124
  132
  140
  148
  157
  166
  176
  186
  196
  207
EBITDA, $m
  19
  20
  23
  26
  30
  34
  38
  42
  46
  51
  56
  61
  66
  72
  77
  83
  89
  96
  102
  109
  116
  124
  132
  140
  148
  157
  166
  176
  186
  196
  207
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
Earnings before tax, $m
  17
  20
  23
  26
  30
  33
  37
  41
  46
  50
  55
  60
  65
  71
  76
  82
  88
  94
  101
  108
  115
  122
  130
  138
  146
  155
  164
  173
  183
  193
  204
Tax expense, $m
  6
  5
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
Net income, $m
  11
  14
  17
  19
  22
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  60
  64
  69
  74
  79
  84
  89
  95
  101
  107
  113
  119
  126
  133
  141
  149

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  49
  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
  65
  19
  22
  25
  28
  32
  35
  39
  43
  48
  52
  57
  62
  67
  73
  78
  84
  90
  96
  103
  110
  117
  124
  132
  140
  148
  156
  165
  175
  185
  195
Adjusted assets (=assets-cash), $m
  16
  19
  22
  25
  28
  32
  35
  39
  43
  48
  52
  57
  62
  67
  73
  78
  84
  90
  96
  103
  110
  117
  124
  132
  140
  148
  156
  165
  175
  185
  195
Revenue / Adjusted assets
  1.625
  1.579
  1.591
  1.600
  1.643
  1.594
  1.629
  1.641
  1.651
  1.625
  1.635
  1.632
  1.629
  1.627
  1.616
  1.628
  1.631
  1.622
  1.625
  1.621
  1.618
  1.615
  1.621
  1.621
  1.621
  1.622
  1.628
  1.630
  1.623
  1.622
  1.626
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
  53
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
Total debt, $m
  0
  1
  3
  5
  7
  9
  11
  13
  15
  18
  20
  23
  26
  29
  32
  35
  38
  42
  45
  49
  53
  57
  61
  65
  69
  74
  79
  84
  89
  95
  101
Total liabilities, $m
  8
  10
  12
  14
  16
  18
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  47
  51
  54
  58
  62
  66
  70
  74
  78
  83
  88
  93
  98
  104
  110
Total equity, $m
  56
  8
  9
  11
  12
  14
  15
  17
  19
  21
  23
  25
  27
  29
  32
  34
  37
  39
  42
  45
  48
  51
  54
  58
  61
  65
  69
  72
  77
  81
  85
Total liabilities and equity, $m
  64
  18
  21
  25
  28
  32
  35
  39
  43
  48
  52
  57
  62
  67
  73
  78
  84
  90
  96
  103
  110
  117
  124
  132
  139
  148
  157
  165
  175
  185
  195
Debt-to-equity ratio
  0.000
  0.180
  0.330
  0.450
  0.550
  0.630
  0.700
  0.760
  0.810
  0.850
  0.890
  0.920
  0.950
  0.980
  1.000
  1.020
  1.040
  1.050
  1.070
  1.080
  1.100
  1.110
  1.120
  1.130
  1.140
  1.140
  1.150
  1.160
  1.170
  1.170
  1.180
Adjusted equity ratio
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  14
  17
  19
  22
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  60
  64
  69
  74
  79
  84
  89
  95
  101
  107
  113
  119
  126
  133
  141
  149
Depreciation, amort., depletion, $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
Funds from operations, $m
  22
  14
  17
  19
  22
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  60
  64
  69
  74
  79
  84
  89
  95
  101
  107
  113
  119
  126
  133
  141
  149
Change in working capital, $m
  6
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
Cash from operations, $m
  16
  14
  16
  18
  21
  23
  26
  29
  32
  36
  39
  43
  46
  50
  54
  58
  63
  67
  72
  77
  82
  87
  93
  99
  105
  111
  117
  124
  131
  138
  146
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
  -17
  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
  14
  16
  18
  21
  23
  26
  29
  32
  36
  39
  43
  46
  50
  54
  58
  63
  67
  72
  77
  82
  87
  93
  99
  105
  111
  117
  124
  131
  138
  146
Issuance/(repayment) of debt, $m
  0
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
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
  0
Cash from financing (excl. dividends), $m  
  0
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
Total cash flow (excl. dividends), $m
  0
  15
  18
  20
  23
  25
  28
  31
  35
  38
  42
  45
  49
  53
  57
  62
  66
  71
  76
  81
  86
  91
  97
  103
  109
  115
  122
  129
  136
  144
  152
Retained Cash Flow (-), $m
  -11
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
Prev. year cash balance distribution, $m
 
  49
  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
 
  63
  16
  19
  21
  24
  27
  30
  33
  36
  40
  43
  47
  51
  55
  59
  64
  68
  73
  78
  83
  88
  94
  100
  106
  112
  118
  125
  132
  140
  147
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
 
  61
  15
  16
  17
  19
  19
  20
  21
  21
  21
  21
  20
  19
  18
  17
  16
  15
  13
  12
  11
  9
  8
  7
  5
  4
  3
  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
  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

BioSpecifics Technologies Corp. is a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum for multiple indications. The Company has a development and license agreement with Endo Global Ventures, a Bermuda unlimited liability company (Endo Global Ventures), an affiliate of Endo International plc (Endo), for injectable collagenase for marketed indications and indications in development. Injectable collagenase clostridium histolyticum is marketed as XIAFLEX (or Xiapex in Europe). The two marketed indications involving its injectable collagenase are Dupuytren's contracture and Peyronie's disease. The other clinical indications for which its collagenase injection has been tested include keloids, hypertrophic scars, scarred tendons, glaucoma, herniated intervertebral discs, and as an adjunct to vitrectomy. The Company is evaluating its options for development of additional indications using collagenase.

FINANCIAL RATIOS  of  BioSpecifics Technologies (BSTC)

Valuation Ratios
P/E Ratio 30.9
Price to Sales 13.1
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 21.2
Price to Free Cash Flow 21.2
Growth Rates
Sales Growth Rate 13%
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 0.5
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 19.8%
Ret/ On Assets - 3 Yr. Avg. 21.4%
Return On Total Capital 21.8%
Ret/ On T. Cap. - 3 Yr. Avg. 22.6%
Return On Equity 21.8%
Return On Equity - 3 Yr. Avg. 22.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 73.1%
EBITDA Margin - 3 Yr. Avg. 64.2%
Operating Margin 65.4%
Oper. Margin - 3 Yr. Avg. 60.2%
Pre-Tax Margin 65.4%
Pre-Tax Margin - 3 Yr. Avg. 60.2%
Net Profit Margin 42.3%
Net Profit Margin - 3 Yr. Avg. 40.5%
Effective Tax Rate 35.3%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 0%

BSTC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BSTC stock intrinsic value calculation we used $26 million for the last fiscal year's total revenue generated by BioSpecifics Technologies. The default revenue input number comes from 2016 income statement of BioSpecifics Technologies. 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 BSTC stock valuation model: a) initial revenue growth rate of 16.7% 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 BSTC is calculated based on our internal credit rating of BioSpecifics Technologies, 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 BioSpecifics Technologies.
    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 BSTC stock the variable cost ratio is equal to 34.6%.

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 BSTC 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 BioSpecifics Technologies.

Corporate tax rate of 27% is the nominal tax rate for BioSpecifics Technologies. 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 BSTC 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 BSTC are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in BioSpecifics Technologies 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 BSTC is equal to 15.4%. 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 - $56 million for BioSpecifics Technologies - 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 7.058 million for BioSpecifics Technologies 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 BioSpecifics Technologies at the current share price and the inputted number of shares is $0.3 billion.

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Financial statements of BSTC
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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