Intrinsic value of Cars.com - CARS

Previous Close

$28.50

  Intrinsic Value

$13.84

stock screener

  Rating & Target

str. sell

-51%

Previous close

$28.50

 
Intrinsic value

$13.84

 
Up/down potential

-51%

 
Rating

str. sell

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

We calculate the intrinsic value of CARS 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  6.03
  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
  633
  646
  661
  677
  697
  718
  741
  766
  793
  823
  854
  888
  924
  963
  1,003
  1,047
  1,093
  1,141
  1,192
  1,247
  1,304
  1,364
  1,428
  1,495
  1,566
  1,641
  1,719
  1,802
  1,889
  1,980
  2,076
Variable operating expenses, $m
 
  303
  308
  314
  321
  328
  336
  345
  355
  365
  376
  309
  321
  335
  349
  364
  380
  397
  414
  433
  453
  474
  496
  520
  544
  570
  597
  626
  656
  688
  722
Fixed operating expenses, $m
 
  165
  169
  173
  178
  182
  187
  191
  196
  201
  206
  211
  217
  222
  227
  233
  239
  245
  251
  257
  264
  270
  277
  284
  291
  298
  306
  314
  321
  329
  338
Total operating expenses, $m
  456
  468
  477
  487
  499
  510
  523
  536
  551
  566
  582
  520
  538
  557
  576
  597
  619
  642
  665
  690
  717
  744
  773
  804
  835
  868
  903
  940
  977
  1,017
  1,060
Operating income, $m
  177
  177
  183
  190
  198
  207
  218
  230
  243
  257
  273
  368
  386
  406
  427
  450
  474
  500
  527
  556
  587
  620
  655
  692
  731
  772
  816
  862
  911
  963
  1,017
EBITDA, $m
  260
  315
  321
  330
  340
  351
  363
  378
  393
  410
  428
  448
  470
  493
  518
  544
  572
  602
  634
  669
  705
  743
  783
  826
  872
  920
  971
  1,025
  1,081
  1,141
  1,204
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
Earnings before tax, $m
  177
  177
  183
  190
  198
  207
  217
  229
  242
  256
  271
  367
  385
  404
  425
  447
  471
  496
  523
  552
  583
  615
  649
  686
  724
  765
  809
  854
  903
  954
  1,007
Tax expense, $m
  1
  48
  49
  51
  53
  56
  59
  62
  65
  69
  73
  99
  104
  109
  115
  121
  127
  134
  141
  149
  157
  166
  175
  185
  196
  207
  218
  231
  244
  257
  272
Net income, $m
  176
  130
  134
  138
  144
  151
  159
  167
  176
  187
  198
  268
  281
  295
  310
  326
  344
  362
  382
  403
  425
  449
  474
  501
  529
  559
  590
  624
  659
  696
  735

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  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
  2,547
  2,593
  2,653
  2,721
  2,797
  2,882
  2,975
  3,077
  3,186
  3,304
  3,431
  3,567
  3,712
  3,866
  4,030
  4,203
  4,388
  4,583
  4,789
  5,007
  5,237
  5,479
  5,735
  6,005
  6,290
  6,589
  6,904
  7,236
  7,585
  7,953
  8,339
Adjusted assets (=assets-cash), $m
  2,538
  2,593
  2,653
  2,721
  2,797
  2,882
  2,975
  3,077
  3,186
  3,304
  3,431
  3,567
  3,712
  3,866
  4,030
  4,203
  4,388
  4,583
  4,789
  5,007
  5,237
  5,479
  5,735
  6,005
  6,290
  6,589
  6,904
  7,236
  7,585
  7,953
  8,339
Revenue / Adjusted assets
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
Average production assets, $m
  1,645
  1,677
  1,716
  1,760
  1,810
  1,864
  1,925
  1,990
  2,061
  2,138
  2,220
  2,307
  2,401
  2,501
  2,607
  2,719
  2,838
  2,964
  3,098
  3,239
  3,388
  3,545
  3,710
  3,885
  4,069
  4,262
  4,466
  4,681
  4,907
  5,145
  5,395
Working capital, $m
  48
  40
  41
  42
  43
  44
  46
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
Total debt, $m
  0
  2
  5
  9
  13
  17
  22
  27
  32
  39
  45
  52
  59
  67
  76
  84
  94
  104
  114
  125
  137
  149
  163
  176
  191
  206
  222
  239
  257
  276
  295
Total liabilities, $m
  130
  132
  135
  139
  143
  147
  152
  157
  162
  169
  175
  182
  189
  197
  206
  214
  224
  234
  244
  255
  267
  279
  293
  306
  321
  336
  352
  369
  387
  406
  425
Total equity, $m
  2,417
  2,461
  2,517
  2,582
  2,655
  2,735
  2,823
  2,920
  3,024
  3,136
  3,256
  3,385
  3,522
  3,669
  3,824
  3,989
  4,164
  4,349
  4,545
  4,751
  4,970
  5,200
  5,443
  5,699
  5,969
  6,253
  6,552
  6,867
  7,198
  7,547
  7,914
Total liabilities and equity, $m
  2,547
  2,593
  2,652
  2,721
  2,798
  2,882
  2,975
  3,077
  3,186
  3,305
  3,431
  3,567
  3,711
  3,866
  4,030
  4,203
  4,388
  4,583
  4,789
  5,006
  5,237
  5,479
  5,736
  6,005
  6,290
  6,589
  6,904
  7,236
  7,585
  7,953
  8,339
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.010
  0.010
  0.010
  0.010
  0.010
  0.010
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.030
  0.030
  0.030
  0.030
  0.030
  0.030
  0.030
  0.030
  0.030
  0.030
  0.040
  0.040
  0.040
Adjusted equity ratio
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  176
  130
  134
  138
  144
  151
  159
  167
  176
  187
  198
  268
  281
  295
  310
  326
  344
  362
  382
  403
  425
  449
  474
  501
  529
  559
  590
  624
  659
  696
  735
Depreciation, amort., depletion, $m
  83
  137
  138
  140
  142
  144
  146
  148
  150
  153
  156
  80
  83
  87
  91
  94
  99
  103
  108
  112
  118
  123
  129
  135
  141
  148
  155
  163
  170
  179
  187
Funds from operations, $m
  161
  267
  272
  278
  286
  295
  304
  315
  327
  340
  354
  348
  364
  382
  401
  421
  442
  465
  490
  515
  543
  572
  603
  636
  670
  707
  745
  786
  829
  875
  923
Change in working capital, $m
  -38
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
Cash from operations, $m
  199
  266
  271
  277
  285
  293
  303
  313
  325
  338
  352
  346
  362
  379
  398
  418
  439
  462
  486
  512
  539
  568
  599
  631
  666
  702
  740
  781
  824
  869
  917
Maintenance CAPEX, $m
  0
  -57
  -58
  -60
  -61
  -63
  -65
  -67
  -69
  -72
  -74
  -77
  -80
  -83
  -87
  -91
  -94
  -99
  -103
  -108
  -112
  -118
  -123
  -129
  -135
  -141
  -148
  -155
  -163
  -170
  -179
New CAPEX, $m
  -10
  -33
  -39
  -44
  -50
  -55
  -60
  -66
  -71
  -76
  -82
  -88
  -94
  -100
  -106
  -112
  -119
  -126
  -133
  -141
  -149
  -157
  -166
  -175
  -184
  -194
  -204
  -215
  -226
  -238
  -250
Cash from investing activities, $m
  -127
  -90
  -97
  -104
  -111
  -118
  -125
  -133
  -140
  -148
  -156
  -165
  -174
  -183
  -193
  -203
  -213
  -225
  -236
  -249
  -261
  -275
  -289
  -304
  -319
  -335
  -352
  -370
  -389
  -408
  -429
Free cash flow, $m
  72
  176
  174
  174
  174
  176
  178
  181
  185
  190
  196
  181
  188
  196
  205
  215
  226
  238
  250
  264
  278
  294
  310
  328
  347
  367
  389
  411
  435
  461
  488
Issuance/(repayment) of debt, $m
  0
  2
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
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  
  -64
  2
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
Total cash flow (excl. dividends), $m
  9
  178
  177
  177
  178
  180
  183
  186
  191
  196
  202
  188
  196
  204
  214
  224
  235
  247
  261
  275
  290
  306
  323
  342
  361
  382
  405
  428
  453
  480
  508
Retained Cash Flow (-), $m
  -112
  -53
  -57
  -65
  -73
  -80
  -88
  -96
  -104
  -112
  -120
  -129
  -137
  -146
  -155
  -165
  -175
  -185
  -196
  -207
  -218
  -230
  -243
  -256
  -270
  -284
  -299
  -315
  -331
  -349
  -367
Prev. year cash balance distribution, $m
 
  9
  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
 
  134
  121
  112
  105
  99
  94
  90
  87
  84
  82
  59
  58
  58
  58
  59
  60
  62
  65
  68
  72
  76
  80
  86
  92
  98
  105
  113
  122
  131
  141
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
 
  129
  110
  98
  87
  77
  68
  61
  54
  48
  43
  28
  25
  22
  20
  17
  15
  14
  12
  10
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
  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

Cars.com Inc. owns a digital automotive marketplace business (Cars.com). Cars.com is an online research destination for car shoppers. The Company is engaged in the sale of online subscription advertising products targeting car dealerships. It offers a suite of products and services targeting the automotive needs of its buyer and seller customers. Cars.com offers a digital automotive marketplace search engine that helps car buyers to make informed purchasing decisions and helps sellers to engage with a portion of their target customer base. This online automotive marketplace service connects buyers and sellers across five Websites: Cars.com, Auto.com, DealerRater.com, NewCars.com and PickupTrucks.com. Its automotive marketplace products also include credible user and automotive and dealer reviews. It is also engaged in the sale of display advertising to national advertisers. Car buyers and car owners interface with Cars.com primarily through the Cars.com sites and mobile applications.


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FINANCIAL RATIOS  of  Cars.com (CARS)

Valuation Ratios
P/E Ratio 11.6
Price to Sales 3.2
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 10.3
Price to Free Cash Flow 10.8
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 11.1%
Cap. Spend. - 3 Yr. Gr. Rate -1.9%
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 7%
Ret/ On Assets - 3 Yr. Avg. 19.7%
Return On Total Capital 7.5%
Ret/ On T. Cap. - 3 Yr. Avg. 21.6%
Return On Equity 7.5%
Return On Equity - 3 Yr. Avg. 21.6%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 79.5%
Gross Margin - 3 Yr. Avg. 78.8%
EBITDA Margin 41.1%
EBITDA Margin - 3 Yr. Avg. 30.5%
Operating Margin 28%
Oper. Margin - 3 Yr. Avg. 19.6%
Pre-Tax Margin 28%
Pre-Tax Margin - 3 Yr. Avg. 19.7%
Net Profit Margin 27.8%
Net Profit Margin - 3 Yr. Avg. 57.9%
Effective Tax Rate 0.6%
Eff/ Tax Rate - 3 Yr. Avg. 0.2%
Payout Ratio 0%

CARS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CARS stock intrinsic value calculation we used $633 million for the last fiscal year's total revenue generated by Cars.com. The default revenue input number comes from 2016 income statement of Cars.com. 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 CARS 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 CARS is calculated based on our internal credit rating of Cars.com, 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 Cars.com.
    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 CARS stock the variable cost ratio is equal to 47.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $161 million in the base year in the intrinsic value calculation for CARS 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 Cars.com.

Corporate tax rate of 27% is the nominal tax rate for Cars.com. 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 CARS 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 CARS are equal to 259.8%.

Life of production assets of 28.8 years is the average useful life of capital assets used in Cars.com 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 CARS is equal to 6.2%. 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 - $2417 million for Cars.com - 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 71.429 million for Cars.com 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 Cars.com at the current share price and the inputted number of shares is $2.0 billion.

COMPANY NEWS

▶ Cars.com Receives Three Major Industry Awards   [Feb-05-18 01:00PM  PR Newswire]
▶ Best Low P/E Stocks to Buy in January   [Jan-17-18 01:15PM  Motley Fool]
▶ Cars.com CEO on auto market in 2018   [Jan-16-18 02:18PM  CNBC Videos]
▶ Cars.com Appoints Bala Subramanian to Board of Directors   [Jan-08-18 08:00AM  PR Newswire]
▶ Cars.com Surges on Word of Starboard Values Stake   [Dec-20-17 09:30AM  Investopedia]
▶ [$$] Activist Starboard Value Buys 9.9% Stake in Cars.com   [01:05AM  The Wall Street Journal]
▶ [$$] Activist Starboard Value Buys 9.9% Stake in Cars.com   [Dec-18-17 06:11PM  The Wall Street Journal]
▶ Cars.com Releases 2017 Year in Review   [Dec-07-17 10:26AM  PR Newswire]
▶ Cars.com posts 3Q profit   [Nov-08-17 07:37AM  Associated Press]
▶ CarGurus amends IPO raise, pegging valuation close to $1.5B   [Oct-12-17 04:35PM  American City Business Journals]
▶ CarGurus raises $150M in upsized IPO, will trade on the Nasdaq Thursday   [Oct-11-17 07:40PM  American City Business Journals]
▶ Cars.com posts 2Q profit   [Aug-09-17 10:22PM  Associated Press]
▶ Death of the Internal Combustion Engine   [Jul-26-17 04:06PM  GuruFocus.com]
▶ Cars.com Revs It Up in Luxury Sports Sedan Challenge   [Jul-10-17 08:00AM  PR Newswire]
▶ [$$] Cars.com Stock Can Drive Up to $45   [Jun-23-17 07:40AM  Barrons.com]
▶ Yahoo Finance Live: Midday Movers - Jun 5th, 2017   [Jun-05-17 02:21PM  Yahoo Finance Video]
▶ Cars.com shares up 5% after spinoff from Tegna   [Jun-01-17 03:58PM  MarketWatch]
Financial statements of CARS
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