Intrinsic value of Charles & Colvard Ltd. - CTHR

Previous Close

$1.06

  Intrinsic Value

$0.39

stock screener

  Rating & Target

str. sell

-63%

Previous close

$1.06

 
Intrinsic value

$0.39

 
Up/down potential

-63%

 
Rating

str. sell

We calculate the intrinsic value of CTHR 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 0.0

 

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, %
  18.80
  17.42
  16.18
  15.06
  14.05
  13.15
  12.33
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
Revenue, $m
  32
  38
  44
  50
  57
  65
  73
  81
  90
  100
  109
  120
  130
  141
  153
  165
  177
  190
  204
  218
  232
  248
  263
  280
  297
  315
  333
  352
  373
  394
Variable operating expenses, $m
  37
  43
  50
  58
  66
  74
  84
  93
  104
  114
  125
  137
  149
  162
  175
  189
  203
  218
  233
  249
  266
  283
  301
  320
  340
  360
  381
  403
  426
  450
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
  37
  43
  50
  58
  66
  74
  84
  93
  104
  114
  125
  137
  149
  162
  175
  189
  203
  218
  233
  249
  266
  283
  301
  320
  340
  360
  381
  403
  426
  450
Operating income, $m
  -5
  -6
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24
  -26
  -27
  -29
  -31
  -34
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
EBITDA, $m
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -38
  -40
  -42
  -45
  -47
  -50
  -53
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
Earnings before tax, $m
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -24
  -25
  -27
  -29
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -58
  -61
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
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -24
  -25
  -27
  -29
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -58
  -61

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
  49
  58
  67
  77
  88
  99
  111
  124
  138
  152
  167
  183
  199
  216
  234
  252
  271
  291
  311
  333
  355
  378
  402
  427
  453
  480
  508
  538
  569
  601
Adjusted assets (=assets-cash), $m
  49
  58
  67
  77
  88
  99
  111
  124
  138
  152
  167
  183
  199
  216
  234
  252
  271
  291
  311
  333
  355
  378
  402
  427
  453
  480
  508
  538
  569
  601
Revenue / Adjusted assets
  0.653
  0.655
  0.657
  0.649
  0.648
  0.657
  0.658
  0.653
  0.652
  0.658
  0.653
  0.656
  0.653
  0.653
  0.654
  0.655
  0.653
  0.653
  0.656
  0.655
  0.654
  0.656
  0.654
  0.656
  0.656
  0.656
  0.656
  0.654
  0.656
  0.656
Average production assets, $m
  2
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
Working capital, $m
  12
  14
  16
  19
  21
  24
  27
  30
  34
  37
  41
  45
  49
  53
  57
  62
  66
  71
  76
  81
  87
  93
  98
  105
  111
  118
  125
  132
  139
  147
Total debt, $m
  1
  3
  4
  6
  7
  9
  11
  13
  15
  17
  20
  22
  24
  27
  30
  33
  36
  39
  42
  45
  49
  52
  56
  60
  64
  68
  72
  77
  82
  87
Total liabilities, $m
  8
  9
  10
  12
  14
  15
  17
  19
  21
  24
  26
  28
  31
  33
  36
  39
  42
  45
  48
  52
  55
  59
  62
  66
  70
  74
  79
  83
  88
  93
Total equity, $m
  41
  49
  56
  65
  74
  84
  94
  105
  117
  129
  141
  154
  168
  182
  197
  213
  229
  246
  263
  281
  300
  319
  340
  361
  383
  406
  430
  455
  481
  508
Total liabilities and equity, $m
  49
  58
  66
  77
  88
  99
  111
  124
  138
  153
  167
  182
  199
  215
  233
  252
  271
  291
  311
  333
  355
  378
  402
  427
  453
  480
  509
  538
  569
  601
Debt-to-equity ratio
  0.030
  0.050
  0.070
  0.090
  0.100
  0.110
  0.120
  0.120
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.150
  0.150
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.170
  0.170
  0.170
  0.170
  0.170
  0.170
  0.170
Adjusted equity ratio
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845
  0.845

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -24
  -25
  -27
  -29
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -58
  -61
Depreciation, amort., depletion, $m
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
Funds from operations, $m
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -48
  -51
  -54
  -57
Change in working capital, $m
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
Cash from operations, $m
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -15
  -16
  -18
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -35
  -37
  -39
  -42
  -44
  -47
  -50
  -52
  -55
  -59
  -62
  -65
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
Free cash flow, $m
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -33
  -35
  -37
  -39
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -63
  -66
  -70
Issuance/(repayment) of debt, $m
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
Issuance/(repurchase) of shares, $m
  11
  13
  14
  16
  18
  20
  21
  23
  25
  27
  29
  32
  34
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  84
  88
Cash from financing (excl. dividends), $m  
  12
  14
  15
  18
  20
  22
  23
  25
  27
  29
  31
  34
  37
  39
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  72
  76
  80
  85
  89
  93
Total cash flow (excl. dividends), $m
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
Retained Cash Flow (-), $m
  -11
  -13
  -14
  -16
  -18
  -20
  -21
  -23
  -25
  -27
  -29
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -76
  -80
  -84
  -88
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
  -6
  -6
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -65
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
  -5
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -9
  -9
  -8
  -8
  -8
  -7
  -6
  -6
  -5
  -5
  -4
  -3
  -3
  -2
  -2
  -2
  -1
  -1
  -1
  0
Current shareholders' claim on cash, %
  68.4
  47.5
  33.3
  23.7
  17.0
  12.4
  9.0
  6.7
  5.0
  3.7
  2.8
  2.1
  1.6
  1.2
  1.0
  0.7
  0.6
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Charles & Colvard, Ltd. manufactures and distributes Charles & Colvard Created Moissanite jewels (moissanite) and finished jewelry featuring moissanite. The Company's segments are Wholesale, Moissanite.com and Charles & Colvard Direct. The Company sells loose moissanite jewels and finished jewelry at wholesale to distributors, manufacturers and retailers, and at retail to end consumers through its operating subsidiaries. The Company manages its business primarily through its three distribution channels that it uses to sell its product lines, loose jewels and finished jewelry, which included Charles and Colvard Direct, LLC. The Company sells loose moissanite jewels and finished jewelry featuring moissanite at wholesale to retailers, television (TV) shopping networks, and designers to be sold to end consumers and directly to consumers through its e-commerce sales channel Moissanite.com. The Company primarily sells moissanite jewels, including Forever Classic and Forever Brilliant.

FINANCIAL RATIOS  of  Charles & Colvard Ltd. (CTHR)

Valuation Ratios
P/E Ratio -4.5
Price to Sales 0.8
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 11.4
Price to Free Cash Flow 11.4
Growth Rates
Sales Growth Rate 11.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -100%
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 -11.8%
Ret/ On Assets - 3 Yr. Avg. -18.6%
Return On Total Capital -13.7%
Ret/ On T. Cap. - 3 Yr. Avg. -20.9%
Return On Equity -13.7%
Return On Equity - 3 Yr. Avg. -20.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 31%
Gross Margin - 3 Yr. Avg. 29.6%
EBITDA Margin -10.3%
EBITDA Margin - 3 Yr. Avg. -18.8%
Operating Margin -13.8%
Oper. Margin - 3 Yr. Avg. -22.5%
Pre-Tax Margin -13.8%
Pre-Tax Margin - 3 Yr. Avg. -22.5%
Net Profit Margin -17.2%
Net Profit Margin - 3 Yr. Avg. -35.2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. -14.8%
Payout Ratio 0%

CTHR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CTHR stock intrinsic value calculation we used $27 million for the last fiscal year's total revenue generated by Charles & Colvard Ltd.. The default revenue input number comes from 0001 income statement of Charles & Colvard Ltd.. 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 CTHR stock valuation model: a) initial revenue growth rate of 18.8% 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 CTHR is calculated based on our internal credit rating of Charles & Colvard Ltd., 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 Charles & Colvard Ltd..
    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 CTHR stock the variable cost ratio is equal to 114.8%.

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 CTHR 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 Charles & Colvard Ltd..

Corporate tax rate of 27% is the nominal tax rate for Charles & Colvard Ltd.. 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 CTHR 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 CTHR are equal to 4.9%.

Life of production assets of 3.1 years is the average useful life of capital assets used in Charles & Colvard Ltd. 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 CTHR is equal to 37.4%. 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 - $34.858626 million for Charles & Colvard Ltd. - 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 21.596 million for Charles & Colvard Ltd. 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 Charles & Colvard Ltd. at the current share price and the inputted number of shares is $0.0 billion.

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