Intrinsic value of China Online Education Group - COE

Previous Close

$6.35

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

Previous close

$6.35

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

We calculate the intrinsic value of COE 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 0001), $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 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  205
  316
  473
  687
  969
  1,332
  1,788
  2,347
  3,020
  3,815
  4,737
  5,792
  6,981
  8,306
  9,766
  11,360
  13,086
  14,941
  16,921
  19,024
  21,248
  23,589
  26,046
  28,618
  31,304
  34,105
  37,023
  40,058
  43,214
  46,494
Variable operating expenses, $m
  243
  376
  562
  815
  1,149
  1,580
  2,121
  2,785
  3,584
  4,526
  5,620
  6,871
  8,282
  9,854
  11,587
  13,478
  15,526
  17,726
  20,076
  22,571
  25,209
  27,987
  30,902
  33,953
  37,140
  40,464
  43,925
  47,526
  51,270
  55,162
Fixed operating expenses, $m
  64
  66
  67
  69
  70
  72
  73
  75
  77
  78
  80
  82
  84
  85
  87
  89
  91
  93
  95
  97
  99
  102
  104
  106
  109
  111
  113
  116
  118
  121
Total operating expenses, $m
  307
  442
  629
  884
  1,219
  1,652
  2,194
  2,860
  3,661
  4,604
  5,700
  6,953
  8,366
  9,939
  11,674
  13,567
  15,617
  17,819
  20,171
  22,668
  25,308
  28,089
  31,006
  34,059
  37,249
  40,575
  44,038
  47,642
  51,388
  55,283
Operating income, $m
  -103
  -125
  -156
  -197
  -251
  -320
  -407
  -513
  -640
  -790
  -963
  -1,162
  -1,385
  -1,634
  -1,908
  -2,207
  -2,531
  -2,879
  -3,250
  -3,644
  -4,061
  -4,500
  -4,960
  -5,442
  -5,945
  -6,469
  -7,016
  -7,584
  -8,175
  -8,789
EBITDA, $m
  -100
  -121
  -150
  -189
  -239
  -304
  -386
  -485
  -604
  -745
  -907
  -1,093
  -1,303
  -1,536
  -1,793
  -2,073
  -2,377
  -2,702
  -3,050
  -3,420
  -3,810
  -4,221
  -4,653
  -5,104
  -5,575
  -6,067
  -6,579
  -7,111
  -7,665
  -8,241
Interest expense (income), $m
  0
  0
  -3
  2
  9
  19
  32
  48
  69
  94
  124
  160
  201
  249
  302
  362
  427
  499
  576
  660
  749
  843
  943
  1,049
  1,159
  1,275
  1,396
  1,521
  1,653
  1,789
  1,931
Earnings before tax, $m
  -103
  -122
  -158
  -206
  -270
  -352
  -455
  -581
  -734
  -914
  -1,123
  -1,363
  -1,634
  -1,936
  -2,270
  -2,634
  -3,030
  -3,455
  -3,910
  -4,393
  -4,904
  -5,443
  -6,009
  -6,601
  -7,220
  -7,865
  -8,537
  -9,237
  -9,964
  -10,720
Tax expense, $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
Net income, $m
  -103
  -122
  -158
  -206
  -270
  -352
  -455
  -581
  -734
  -914
  -1,123
  -1,363
  -1,634
  -1,936
  -2,270
  -2,634
  -3,030
  -3,455
  -3,910
  -4,393
  -4,904
  -5,443
  -6,009
  -6,601
  -7,220
  -7,865
  -8,537
  -9,237
  -9,964
  -10,720

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
  189
  293
  438
  635
  896
  1,232
  1,654
  2,171
  2,794
  3,529
  4,382
  5,358
  6,458
  7,683
  9,034
  10,509
  12,106
  13,821
  15,653
  17,599
  19,656
  21,821
  24,094
  26,473
  28,959
  31,550
  34,249
  37,056
  39,976
  43,010
Adjusted assets (=assets-cash), $m
  189
  293
  438
  635
  896
  1,232
  1,654
  2,171
  2,794
  3,529
  4,382
  5,358
  6,458
  7,683
  9,034
  10,509
  12,106
  13,821
  15,653
  17,599
  19,656
  21,821
  24,094
  26,473
  28,959
  31,550
  34,249
  37,056
  39,976
  43,010
Revenue / Adjusted assets
  1.085
  1.078
  1.080
  1.082
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
  1.081
Average production assets, $m
  12
  19
  28
  41
  57
  79
  105
  138
  178
  225
  279
  342
  412
  490
  576
  670
  772
  882
  998
  1,122
  1,254
  1,392
  1,537
  1,688
  1,847
  2,012
  2,184
  2,363
  2,550
  2,743
Working capital, $m
  -324
  -501
  -749
  -1,086
  -1,532
  -2,107
  -2,828
  -3,713
  -4,778
  -6,035
  -7,494
  -9,162
  -11,044
  -13,140
  -15,450
  -17,972
  -20,702
  -23,636
  -26,769
  -30,097
  -33,614
  -37,317
  -41,205
  -45,273
  -49,523
  -53,955
  -58,570
  -63,372
  -68,364
  -73,554
Total debt, $m
  -49
  44
  175
  352
  587
  889
  1,269
  1,735
  2,295
  2,957
  3,724
  4,602
  5,592
  6,696
  7,911
  9,239
  10,676
  12,220
  13,868
  15,620
  17,471
  19,420
  21,465
  23,607
  25,843
  28,175
  30,604
  33,131
  35,759
  38,490
Total liabilities, $m
  171
  263
  394
  572
  806
  1,109
  1,488
  1,954
  2,515
  3,176
  3,944
  4,822
  5,812
  6,915
  8,131
  9,458
  10,895
  12,439
  14,088
  15,839
  17,690
  19,639
  21,685
  23,826
  26,063
  28,395
  30,824
  33,351
  35,978
  38,709
Total equity, $m
  19
  29
  44
  64
  90
  123
  165
  217
  279
  353
  438
  536
  646
  768
  903
  1,051
  1,211
  1,382
  1,565
  1,760
  1,966
  2,182
  2,409
  2,647
  2,896
  3,155
  3,425
  3,706
  3,998
  4,301
Total liabilities and equity, $m
  190
  292
  438
  636
  896
  1,232
  1,653
  2,171
  2,794
  3,529
  4,382
  5,358
  6,458
  7,683
  9,034
  10,509
  12,106
  13,821
  15,653
  17,599
  19,656
  21,821
  24,094
  26,473
  28,959
  31,550
  34,249
  37,057
  39,976
  43,010
Debt-to-equity ratio
  -2.580
  1.500
  3.990
  5.540
  6.550
  7.220
  7.670
  7.990
  8.210
  8.380
  8.500
  8.590
  8.660
  8.710
  8.760
  8.790
  8.820
  8.840
  8.860
  8.880
  8.890
  8.900
  8.910
  8.920
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
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
  -103
  -122
  -158
  -206
  -270
  -352
  -455
  -581
  -734
  -914
  -1,123
  -1,363
  -1,634
  -1,936
  -2,270
  -2,634
  -3,030
  -3,455
  -3,910
  -4,393
  -4,904
  -5,443
  -6,009
  -6,601
  -7,220
  -7,865
  -8,537
  -9,237
  -9,964
  -10,720
Depreciation, amort., depletion, $m
  3
  4
  6
  8
  12
  16
  21
  28
  36
  45
  56
  68
  82
  98
  115
  134
  154
  176
  200
  224
  251
  278
  307
  338
  369
  402
  437
  473
  510
  549
Funds from operations, $m
  -100
  -118
  -152
  -198
  -258
  -336
  -434
  -553
  -698
  -868
  -1,067
  -1,294
  -1,551
  -1,838
  -2,154
  -2,500
  -2,875
  -3,279
  -3,710
  -4,169
  -4,654
  -5,165
  -5,701
  -6,263
  -6,850
  -7,463
  -8,100
  -8,764
  -9,454
  -10,172
Change in working capital, $m
  -121
  -177
  -248
  -338
  -446
  -574
  -721
  -885
  -1,065
  -1,257
  -1,459
  -1,668
  -1,881
  -2,096
  -2,310
  -2,522
  -2,730
  -2,934
  -3,133
  -3,327
  -3,517
  -3,704
  -3,887
  -4,069
  -4,250
  -4,432
  -4,615
  -4,802
  -4,993
  -5,189
Cash from operations, $m
  21
  58
  96
  140
  188
  238
  288
  332
  367
  389
  392
  374
  330
  258
  156
  22
  -145
  -345
  -577
  -841
  -1,136
  -1,461
  -1,814
  -2,194
  -2,600
  -3,031
  -3,485
  -3,962
  -4,462
  -4,982
Maintenance CAPEX, $m
  -2
  -2
  -4
  -6
  -8
  -11
  -16
  -21
  -28
  -36
  -45
  -56
  -68
  -82
  -98
  -115
  -134
  -154
  -176
  -200
  -224
  -251
  -278
  -307
  -338
  -369
  -402
  -437
  -473
  -510
New CAPEX, $m
  -5
  -7
  -9
  -13
  -17
  -21
  -27
  -33
  -40
  -47
  -54
  -62
  -70
  -78
  -86
  -94
  -102
  -109
  -117
  -124
  -131
  -138
  -145
  -152
  -158
  -165
  -172
  -179
  -186
  -194
Cash from investing activities, $m
  -7
  -9
  -13
  -19
  -25
  -32
  -43
  -54
  -68
  -83
  -99
  -118
  -138
  -160
  -184
  -209
  -236
  -263
  -293
  -324
  -355
  -389
  -423
  -459
  -496
  -534
  -574
  -616
  -659
  -704
Free cash flow, $m
  15
  49
  83
  121
  163
  205
  245
  278
  300
  306
  293
  256
  192
  98
  -28
  -188
  -381
  -609
  -870
  -1,165
  -1,492
  -1,850
  -2,237
  -2,653
  -3,096
  -3,566
  -4,060
  -4,578
  -5,120
  -5,686
Issuance/(repayment) of debt, $m
  -49
  93
  131
  178
  235
  302
  380
  466
  560
  662
  768
  878
  990
  1,103
  1,216
  1,327
  1,437
  1,544
  1,649
  1,751
  1,851
  1,949
  2,046
  2,141
  2,237
  2,332
  2,429
  2,527
  2,628
  2,731
Issuance/(repurchase) of shares, $m
  223
  133
  173
  226
  296
  386
  497
  633
  796
  987
  1,208
  1,460
  1,744
  2,059
  2,405
  2,782
  3,189
  3,627
  4,093
  4,588
  5,110
  5,660
  6,236
  6,839
  7,468
  8,124
  8,807
  9,518
  10,256
  11,024
Cash from financing (excl. dividends), $m  
  174
  226
  304
  404
  531
  688
  877
  1,099
  1,356
  1,649
  1,976
  2,338
  2,734
  3,162
  3,621
  4,109
  4,626
  5,171
  5,742
  6,339
  6,961
  7,609
  8,282
  8,980
  9,705
  10,456
  11,236
  12,045
  12,884
  13,755
Total cash flow (excl. dividends), $m
  189
  275
  386
  525
  694
  893
  1,121
  1,377
  1,656
  1,955
  2,269
  2,594
  2,925
  3,259
  3,592
  3,922
  4,245
  4,562
  4,872
  5,174
  5,469
  5,759
  6,044
  6,327
  6,608
  6,891
  7,176
  7,466
  7,763
  8,069
Retained Cash Flow (-), $m
  -223
  -133
  -173
  -226
  -296
  -386
  -497
  -633
  -796
  -987
  -1,208
  -1,460
  -1,744
  -2,059
  -2,405
  -2,782
  -3,189
  -3,627
  -4,093
  -4,588
  -5,110
  -5,660
  -6,236
  -6,839
  -7,468
  -8,124
  -8,807
  -9,518
  -10,256
  -11,024
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
  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
  -34
  142
  213
  299
  398
  508
  624
  744
  860
  968
  1,061
  1,134
  1,182
  1,201
  1,188
  1,140
  1,056
  935
  779
  586
  359
  99
  -192
  -512
  -860
  -1,233
  -1,631
  -2,051
  -2,493
  -2,955
Discount rate, %
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
  -32
  128
  180
  237
  293
  345
  390
  423
  442
  445
  434
  408
  370
  324
  273
  221
  170
  123
  83
  50
  24
  5
  -7
  -15
  -18
  -18
  -17
  -14
  -11
  -9
Current shareholders' claim on cash, %
  50.0
  6.2
  0.9
  0.1
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

China Online Education Group is engaged in providing online English language education services to students in the People's Republic of China (the PRC). The Company operates an online education platform that provides online tutoring programs to students through the Internet. Its platform analyzes teachers' teaching aptitudes, feedback and rating from students, as well as background, and recommends suitable teachers to students according to their respective characteristics and learning objectives. The Company develops and tailors its curriculum to its interactive lesson format. The Company offers various courses, which include Classic English and Classic English Junior that are focused on the development of English communication skills. The Company also offers various specialty courses that are focused at situation-based English education and test preparation needs, such as Business English and International English Language Testing System (IELTS) Speaking.

FINANCIAL RATIOS  of  China Online Education Group (COE)

Valuation Ratios
P/E Ratio -25.8
Price to Sales 31.3
Price to Book -136.4
Price to Tangible Book
Price to Cash Flow 477.6
Price to Free Cash Flow -955.1
Growth Rates
Sales Growth Rate 177.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
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 -96.1%
Ret/ On Assets - 3 Yr. Avg. -97.6%
Return On Total Capital 569.2%
Ret/ On T. Cap. - 3 Yr. Avg. -639%
Return On Equity 569.2%
Return On Equity - 3 Yr. Avg. -639%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 63.9%
Gross Margin - 3 Yr. Avg. 59.2%
EBITDA Margin -118%
EBITDA Margin - 3 Yr. Avg. -167.4%
Operating Margin -121.3%
Oper. Margin - 3 Yr. Avg. -165.8%
Pre-Tax Margin -121.3%
Pre-Tax Margin - 3 Yr. Avg. -170%
Net Profit Margin -121.3%
Net Profit Margin - 3 Yr. Avg. -174.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. -2.4%
Payout Ratio 0%

COE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the COE stock intrinsic value calculation we used $128 million for the last fiscal year's total revenue generated by China Online Education Group. The default revenue input number comes from 0001 income statement of China Online Education Group. 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 COE stock valuation model: a) initial revenue growth rate of 60% 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 5.2%, whose default value for COE is calculated based on our internal credit rating of China Online Education Group, 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 China Online Education Group.
    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 COE stock the variable cost ratio is equal to 118.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $63 million in the base year in the intrinsic value calculation for COE 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 China Online Education Group.

Corporate tax rate of 27% is the nominal tax rate for China Online Education Group. 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 COE 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 COE are equal to 5.9%.

Life of production assets of 1.9 years is the average useful life of capital assets used in China Online Education Group 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 COE is equal to -158.2%. 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 - $-101.026451028 million for China Online Education Group - 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 20.181 million for China Online Education Group 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 China Online Education Group at the current share price and the inputted number of shares is $0.1 billion.

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