Intrinsic value of Descartes Systems Group - DSGX

Previous Close

$28.85

  Intrinsic Value

$4.76

stock screener

  Rating & Target

str. sell

-83%

  Value-price divergence*

-56%

Previous close

$28.85

 
Intrinsic value

$4.76

 
Up/down potential

-83%

 
Rating

str. sell

 
Value-price divergence*

-56%

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

We calculate the intrinsic value of DSGX 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 2.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  10.27
  12.20
  11.48
  10.83
  10.25
  9.72
  9.25
  8.83
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  204
  229
  255
  283
  312
  342
  374
  407
  441
  477
  514
  553
  593
  634
  678
  723
  770
  818
  869
  922
  977
  1,034
  1,094
  1,157
  1,222
  1,290
  1,361
  1,436
  1,513
  1,595
  1,680
Variable operating expenses, $m
 
  190
  209
  228
  249
  271
  293
  317
  341
  367
  393
  395
  423
  453
  484
  516
  550
  584
  621
  658
  698
  739
  781
  826
  873
  921
  972
  1,025
  1,081
  1,139
  1,200
Fixed operating expenses, $m
 
  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
  2
Total operating expenses, $m
  173
  191
  210
  229
  250
  272
  294
  318
  342
  368
  394
  396
  424
  454
  485
  517
  551
  586
  623
  660
  700
  741
  783
  828
  875
  923
  974
  1,027
  1,083
  1,141
  1,202
Operating income, $m
  31
  38
  46
  53
  62
  70
  79
  89
  99
  109
  119
  157
  168
  180
  192
  205
  219
  232
  247
  262
  278
  294
  311
  329
  348
  367
  387
  409
  431
  454
  478
EBITDA, $m
  65
  79
  88
  98
  108
  119
  130
  141
  153
  166
  179
  192
  206
  221
  236
  251
  268
  285
  303
  321
  340
  360
  381
  403
  426
  450
  474
  500
  528
  556
  586
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
Earnings before tax, $m
  32
  38
  45
  53
  61
  69
  78
  87
  96
  106
  116
  153
  164
  175
  187
  200
  212
  226
  240
  254
  269
  285
  301
  318
  336
  355
  374
  395
  416
  438
  462
Tax expense, $m
  8
  10
  12
  14
  16
  19
  21
  23
  26
  29
  31
  41
  44
  47
  51
  54
  57
  61
  65
  69
  73
  77
  81
  86
  91
  96
  101
  107
  112
  118
  125
Net income, $m
  24
  28
  33
  39
  44
  50
  57
  63
  70
  77
  85
  112
  120
  128
  137
  146
  155
  165
  175
  185
  196
  208
  220
  232
  245
  259
  273
  288
  304
  320
  337

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  38
  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
  501
  519
  579
  641
  707
  776
  848
  922
  1,000
  1,081
  1,165
  1,253
  1,344
  1,438
  1,537
  1,639
  1,745
  1,856
  1,971
  2,091
  2,215
  2,346
  2,481
  2,623
  2,771
  2,925
  3,087
  3,255
  3,432
  3,616
  3,809
Adjusted assets (=assets-cash), $m
  463
  519
  579
  641
  707
  776
  848
  922
  1,000
  1,081
  1,165
  1,253
  1,344
  1,438
  1,537
  1,639
  1,745
  1,856
  1,971
  2,091
  2,215
  2,346
  2,481
  2,623
  2,771
  2,925
  3,087
  3,255
  3,432
  3,616
  3,809
Revenue / Adjusted assets
  0.441
  0.441
  0.440
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
Average production assets, $m
  149
  167
  186
  206
  228
  250
  273
  297
  322
  348
  375
  403
  433
  463
  495
  528
  562
  597
  634
  673
  713
  755
  799
  844
  892
  942
  994
  1,048
  1,105
  1,164
  1,226
Working capital, $m
  19
  -21
  -24
  -26
  -29
  -32
  -35
  -38
  -41
  -44
  -48
  -51
  -55
  -59
  -63
  -67
  -72
  -76
  -81
  -86
  -91
  -96
  -102
  -108
  -114
  -120
  -127
  -134
  -141
  -148
  -156
Total debt, $m
  0
  8
  17
  27
  37
  47
  58
  69
  81
  93
  106
  119
  133
  147
  162
  177
  194
  210
  228
  246
  265
  284
  305
  326
  348
  372
  396
  422
  448
  476
  505
Total liabilities, $m
  70
  78
  87
  97
  107
  117
  128
  139
  151
  163
  176
  189
  203
  217
  232
  247
  264
  280
  298
  316
  335
  354
  375
  396
  418
  442
  466
  492
  518
  546
  575
Total equity, $m
  431
  441
  491
  544
  600
  659
  720
  783
  849
  918
  989
  1,064
  1,141
  1,221
  1,305
  1,391
  1,482
  1,575
  1,673
  1,775
  1,881
  1,991
  2,107
  2,227
  2,352
  2,484
  2,621
  2,764
  2,914
  3,070
  3,234
Total liabilities and equity, $m
  501
  519
  578
  641
  707
  776
  848
  922
  1,000
  1,081
  1,165
  1,253
  1,344
  1,438
  1,537
  1,638
  1,746
  1,855
  1,971
  2,091
  2,216
  2,345
  2,482
  2,623
  2,770
  2,926
  3,087
  3,256
  3,432
  3,616
  3,809
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.100
  0.110
  0.110
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.160
  0.160
Adjusted equity ratio
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24
  28
  33
  39
  44
  50
  57
  63
  70
  77
  85
  112
  120
  128
  137
  146
  155
  165
  175
  185
  196
  208
  220
  232
  245
  259
  273
  288
  304
  320
  337
Depreciation, amort., depletion, $m
  34
  41
  43
  44
  46
  48
  50
  52
  55
  57
  59
  35
  38
  41
  43
  46
  49
  52
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
  108
Funds from operations, $m
  83
  69
  76
  83
  91
  99
  107
  116
  125
  134
  144
  147
  158
  169
  180
  192
  204
  217
  231
  244
  259
  274
  290
  306
  324
  342
  360
  380
  401
  422
  445
Change in working capital, $m
  10
  -2
  -2
  -3
  -3
  -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
  73
  71
  78
  86
  93
  101
  110
  119
  128
  137
  147
  151
  161
  172
  184
  196
  209
  222
  235
  249
  264
  279
  296
  312
  330
  348
  367
  387
  408
  430
  452
Maintenance CAPEX, $m
  0
  -13
  -15
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -31
  -33
  -35
  -38
  -41
  -43
  -46
  -49
  -52
  -56
  -59
  -63
  -66
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -102
New CAPEX, $m
  -5
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
Cash from investing activities, $m
  -70
  -31
  -34
  -36
  -39
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -64
  -68
  -73
  -76
  -80
  -85
  -89
  -95
  -99
  -105
  -110
  -116
  -122
  -128
  -135
  -141
  -149
  -156
  -164
Free cash flow, $m
  3
  40
  44
  49
  54
  59
  65
  71
  77
  83
  90
  90
  97
  104
  112
  120
  128
  137
  146
  155
  165
  175
  186
  197
  208
  220
  232
  245
  259
  273
  288
Issuance/(repayment) of debt, $m
  1
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  27
  28
  29
Issuance/(repurchase) of shares, $m
  0
  20
  18
  15
  11
  8
  4
  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
  28
  27
  24
  21
  18
  15
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  27
  28
  29
Total cash flow (excl. dividends), $m
  1
  68
  71
  73
  75
  78
  80
  82
  89
  95
  102
  103
  110
  118
  127
  135
  144
  154
  163
  173
  184
  195
  206
  218
  230
  243
  257
  271
  286
  301
  317
Retained Cash Flow (-), $m
  -29
  -48
  -51
  -53
  -56
  -58
  -61
  -64
  -66
  -69
  -72
  -74
  -77
  -80
  -83
  -87
  -90
  -94
  -98
  -102
  -106
  -111
  -115
  -120
  -126
  -131
  -137
  -143
  -150
  -157
  -164
Prev. year cash balance distribution, $m
 
  38
  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
 
  58
  20
  20
  20
  19
  19
  19
  22
  27
  31
  28
  33
  38
  43
  49
  54
  60
  65
  72
  78
  84
  91
  98
  105
  112
  120
  128
  136
  145
  153
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
 
  56
  19
  17
  16
  15
  14
  13
  14
  15
  16
  14
  14
  15
  15
  14
  14
  13
  12
  11
  10
  9
  8
  6
  5
  4
  3
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  99.0
  98.3
  97.7
  97.3
  97.0
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9

Descartes Systems Group Inc (Descartes) is a Canada-based global provider of federated network and global logistics technology solutions that help its customers make and receive shipments and manage related resources. Its network-based solutions, which primarily consist of services and software, connect people to their trading partners and enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route and resource planning, execution and monitoring; access and leverage global trade and restricted party data; inventory and asset visibility; rate and transportation management, and warehouse operations. Its solutions include Logistics Technology Platform that fuses the Descartes Global Logistics Network (Descartes GLN); customs and regulatory compliance; routing, mobile and telematics; global logistics network services; transportation management, and broker and forwarder enterprise systems. It operates through MacroPoint.

FINANCIAL RATIOS  of  Descartes Systems Group (DSGX)

Valuation Ratios
P/E Ratio 91.2
Price to Sales 10.7
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 30
Price to Free Cash Flow 32.2
Growth Rates
Sales Growth Rate 10.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 25%
Cap. Spend. - 3 Yr. Gr. Rate 20.1%
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 5%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. 5.2%
Return On Equity 5.8%
Return On Equity - 3 Yr. Avg. 5.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 72.5%
Gross Margin - 3 Yr. Avg. 70.4%
EBITDA Margin 32.4%
EBITDA Margin - 3 Yr. Avg. 30.4%
Operating Margin 15.2%
Oper. Margin - 3 Yr. Avg. 14.6%
Pre-Tax Margin 15.7%
Pre-Tax Margin - 3 Yr. Avg. 14.6%
Net Profit Margin 11.8%
Net Profit Margin - 3 Yr. Avg. 10.6%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 27.3%
Payout Ratio 0%

DSGX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DSGX stock intrinsic value calculation we used $204 million for the last fiscal year's total revenue generated by Descartes Systems Group. The default revenue input number comes from 2017 income statement of Descartes Systems 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 DSGX stock valuation model: a) initial revenue growth rate of 12.2% 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 DSGX is calculated based on our internal credit rating of Descartes Systems 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 Descartes Systems 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 DSGX stock the variable cost ratio is equal to 84.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1 million in the base year in the intrinsic value calculation for DSGX 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 Descartes Systems Group.

Corporate tax rate of 27% is the nominal tax rate for Descartes Systems 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 DSGX 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 DSGX are equal to 73%.

Life of production assets of 11.4 years is the average useful life of capital assets used in Descartes Systems 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 DSGX is equal to -9.3%. 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 - $431 million for Descartes Systems 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 75.963 million for Descartes Systems 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 Descartes Systems Group at the current share price and the inputted number of shares is $2.2 billion.

RELATED COMPANIES Price Int.Val. Rating
SAP SAP ADR 111.84 148.41  buy
TRMB Trimble 40.98 17.71  str.sell
MANH Manhattan Asso 46.77 33.56  hold
ORCL Oracle 48.86 29.52  sell
MSFT Microsoft 77.65 60.76  hold
BCE BCE 46.98 26.80  sell

COMPANY NEWS

▶ Descartes Systems Gets A Composite Rating Upgrade   [03:00AM  Investor's Business Daily]
▶ Descartes Systems misses 2Q profit forecasts   [Sep-06-17 11:56PM  Associated Press]
▶ Manuport Logistics Uses Descartes for SOLAS Compliance   [Aug-22-17 06:46AM  GlobeNewswire]
▶ Descartes Acquires MacroPoint   [Aug-15-17 06:30AM  GlobeNewswire]
▶ How To Play It: Mobility   [09:45AM  Forbes]
▶ Descartes Acquires PCSTrac Business   [Jun-02-17 06:45AM  GlobeNewswire]
▶ Descartes Announces Results of Annual Shareholder Meeting   [Jun-01-17 04:01PM  GlobeNewswire]
▶ Descartes Systems misses 1Q profit forecasts   [May-31-17 04:14PM  Associated Press]
▶ Descartes Acquires ShipRush   [May-19-17 06:45AM  GlobeNewswire]
▶ Descartes Systems misses 4Q profit forecasts   [Mar-08-17 05:04PM  Associated Press]
▶ [$$] Descartes Acquires Datamyne   [Dec-23-16 03:43PM  at The Wall Street Journal]
▶ Descartes Acquires Datamyne   [08:10AM  GlobeNewswire]
▶ Descartes Acquires 4Solutions   [Nov-11-16 07:00AM  GlobeNewswire]
▶ What Is New In Fleet Safety?   [Oct-13-16 01:45PM  at Forbes]
▶ Descartes Acquires Appterra   [Oct-12-16 06:21PM  GlobeNewswire]
Financial statements of DSGX
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.