Intrinsic value of Descartes Systems Group - DSGX

Previous Close

$28.60

  Intrinsic Value

$7.76

stock screener

  Rating & Target

str. sell

-73%

Previous close

$28.60

 
Intrinsic value

$7.76

 
Up/down potential

-73%

 
Rating

str. sell

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 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 2.2

 

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, %
  16.50
  15.35
  14.32
  13.38
  12.55
  11.79
  11.11
  10.50
  9.95
  9.46
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
Revenue, $m
  277
  319
  365
  414
  465
  520
  578
  639
  702
  769
  838
  910
  985
  1,063
  1,145
  1,229
  1,317
  1,408
  1,502
  1,601
  1,703
  1,810
  1,921
  2,036
  2,157
  2,282
  2,414
  2,550
  2,693
  2,842
Variable operating expenses, $m
  226
  252
  281
  312
  344
  378
  414
  452
  492
  534
  524
  569
  616
  665
  716
  769
  824
  881
  940
  1,001
  1,065
  1,132
  1,202
  1,274
  1,349
  1,428
  1,510
  1,595
  1,685
  1,778
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
  226
  252
  281
  312
  344
  378
  414
  452
  492
  534
  524
  569
  616
  665
  716
  769
  824
  881
  940
  1,001
  1,065
  1,132
  1,202
  1,274
  1,349
  1,428
  1,510
  1,595
  1,685
  1,778
Operating income, $m
  51
  67
  84
  102
  121
  142
  164
  186
  210
  235
  314
  341
  369
  398
  429
  460
  493
  527
  563
  599
  638
  678
  719
  762
  808
  855
  904
  955
  1,008
  1,064
EBITDA, $m
  126
  145
  166
  188
  212
  237
  263
  291
  320
  350
  382
  415
  449
  484
  521
  560
  600
  641
  684
  729
  776
  824
  875
  927
  982
  1,040
  1,099
  1,162
  1,227
  1,295
Interest expense (income), $m
  0
  3
  4
  6
  7
  9
  11
  13
  15
  18
  20
  22
  25
  28
  31
  33
  36
  40
  43
  46
  50
  53
  57
  61
  65
  70
  74
  79
  84
  89
  94
Earnings before tax, $m
  48
  63
  78
  95
  112
  131
  150
  171
  193
  215
  291
  316
  341
  368
  395
  424
  453
  484
  516
  550
  584
  620
  658
  697
  738
  780
  825
  871
  920
  970
Tax expense, $m
  13
  17
  21
  26
  30
  35
  41
  46
  52
  58
  79
  85
  92
  99
  107
  114
  122
  131
  139
  148
  158
  167
  178
  188
  199
  211
  223
  235
  248
  262
Net income, $m
  35
  46
  57
  69
  82
  96
  110
  125
  141
  157
  213
  231
  249
  268
  288
  309
  331
  353
  377
  401
  426
  453
  480
  509
  539
  570
  602
  636
  671
  708

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
  730
  842
  962
  1,091
  1,228
  1,373
  1,525
  1,686
  1,853
  2,029
  2,211
  2,402
  2,600
  2,806
  3,020
  3,242
  3,474
  3,714
  3,964
  4,224
  4,494
  4,775
  5,068
  5,373
  5,691
  6,022
  6,368
  6,729
  7,106
  7,500
Adjusted assets (=assets-cash), $m
  730
  842
  962
  1,091
  1,228
  1,373
  1,525
  1,686
  1,853
  2,029
  2,211
  2,402
  2,600
  2,806
  3,020
  3,242
  3,474
  3,714
  3,964
  4,224
  4,494
  4,775
  5,068
  5,373
  5,691
  6,022
  6,368
  6,729
  7,106
  7,500
Revenue / Adjusted assets
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
Average production assets, $m
  287
  331
  378
  429
  483
  540
  600
  662
  728
  797
  869
  944
  1,022
  1,103
  1,187
  1,274
  1,365
  1,460
  1,558
  1,660
  1,766
  1,877
  1,992
  2,112
  2,237
  2,367
  2,503
  2,645
  2,793
  2,948
Working capital, $m
  -33
  -38
  -43
  -49
  -55
  -61
  -68
  -75
  -83
  -91
  -99
  -107
  -116
  -125
  -135
  -145
  -155
  -166
  -177
  -189
  -201
  -214
  -227
  -240
  -255
  -269
  -285
  -301
  -318
  -335
Total debt, $m
  58
  81
  105
  131
  159
  188
  219
  251
  285
  321
  358
  396
  436
  478
  521
  566
  613
  661
  712
  764
  819
  875
  935
  996
  1,060
  1,127
  1,197
  1,270
  1,346
  1,426
Total liabilities, $m
  147
  170
  194
  220
  248
  277
  308
  340
  374
  410
  447
  485
  525
  567
  610
  655
  702
  750
  801
  853
  908
  965
  1,024
  1,085
  1,150
  1,217
  1,286
  1,359
  1,435
  1,515
Total equity, $m
  582
  672
  768
  871
  980
  1,096
  1,217
  1,345
  1,479
  1,619
  1,765
  1,917
  2,075
  2,239
  2,410
  2,587
  2,772
  2,964
  3,163
  3,370
  3,586
  3,810
  4,044
  4,288
  4,541
  4,806
  5,082
  5,370
  5,671
  5,985
Total liabilities and equity, $m
  729
  842
  962
  1,091
  1,228
  1,373
  1,525
  1,685
  1,853
  2,029
  2,212
  2,402
  2,600
  2,806
  3,020
  3,242
  3,474
  3,714
  3,964
  4,223
  4,494
  4,775
  5,068
  5,373
  5,691
  6,023
  6,368
  6,729
  7,106
  7,500
Debt-to-equity ratio
  0.100
  0.120
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
  0.210
  0.220
  0.220
  0.220
  0.220
  0.220
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.240
  0.240
  0.240
  0.240
Adjusted equity ratio
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  35
  46
  57
  69
  82
  96
  110
  125
  141
  157
  213
  231
  249
  268
  288
  309
  331
  353
  377
  401
  426
  453
  480
  509
  539
  570
  602
  636
  671
  708
Depreciation, amort., depletion, $m
  75
  79
  82
  86
  91
  95
  100
  105
  110
  115
  68
  74
  80
  86
  93
  100
  107
  114
  122
  130
  138
  147
  156
  165
  175
  185
  196
  207
  218
  230
Funds from operations, $m
  110
  124
  139
  155
  172
  191
  210
  229
  250
  272
  281
  304
  329
  355
  381
  409
  438
  467
  499
  531
  564
  599
  636
  674
  713
  755
  798
  843
  889
  938
Change in working capital, $m
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
Cash from operations, $m
  115
  129
  145
  161
  179
  197
  216
  237
  258
  280
  289
  313
  338
  364
  391
  419
  448
  478
  510
  542
  577
  612
  649
  687
  728
  769
  813
  859
  906
  956
Maintenance CAPEX, $m
  -19
  -22
  -26
  -30
  -34
  -38
  -42
  -47
  -52
  -57
  -62
  -68
  -74
  -80
  -86
  -93
  -100
  -107
  -114
  -122
  -130
  -138
  -147
  -156
  -165
  -175
  -185
  -196
  -207
  -218
New CAPEX, $m
  -41
  -44
  -47
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -78
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -106
  -111
  -115
  -120
  -125
  -130
  -136
  -142
  -148
  -155
Cash from investing activities, $m
  -60
  -66
  -73
  -81
  -88
  -95
  -102
  -110
  -118
  -126
  -134
  -143
  -152
  -161
  -170
  -180
  -191
  -201
  -212
  -224
  -236
  -249
  -262
  -276
  -290
  -305
  -321
  -338
  -355
  -373
Free cash flow, $m
  55
  63
  72
  81
  91
  102
  114
  127
  140
  154
  155
  170
  186
  203
  220
  239
  258
  277
  298
  319
  341
  364
  387
  412
  438
  464
  492
  521
  552
  583
Issuance/(repayment) of debt, $m
  21
  23
  24
  26
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  50
  52
  55
  57
  59
  62
  64
  67
  70
  73
  76
  80
Issuance/(repurchase) of shares, $m
  48
  44
  39
  34
  27
  20
  12
  3
  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  
  69
  67
  63
  60
  55
  49
  43
  35
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  50
  52
  55
  57
  59
  62
  64
  67
  70
  73
  76
  80
Total cash flow (excl. dividends), $m
  125
  129
  135
  141
  146
  152
  157
  162
  174
  190
  192
  209
  226
  245
  264
  284
  304
  326
  348
  371
  395
  420
  446
  474
  502
  531
  562
  594
  628
  663
Retained Cash Flow (-), $m
  -84
  -89
  -96
  -103
  -109
  -116
  -122
  -128
  -134
  -140
  -146
  -152
  -158
  -164
  -171
  -178
  -185
  -192
  -199
  -207
  -216
  -224
  -234
  -243
  -254
  -265
  -276
  -288
  -301
  -314
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
  41
  40
  39
  38
  37
  36
  35
  34
  40
  50
  46
  57
  68
  80
  93
  106
  120
  134
  149
  164
  180
  196
  213
  230
  248
  267
  286
  306
  327
  348
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
  39
  36
  34
  31
  29
  26
  24
  21
  23
  26
  22
  24
  26
  27
  27
  27
  26
  25
  23
  21
  19
  16
  14
  12
  10
  8
  6
  5
  4
  3
Current shareholders' claim on cash, %
  97.8
  96.2
  94.9
  94.0
  93.3
  92.9
  92.7
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6
  92.6

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 90.4
Price to Sales 10.6
Price to Book 5
Price to Tangible Book
Price to Cash Flow 29.7
Price to Free Cash Flow 31.9
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 $237.439 million for the last fiscal year's total revenue generated by Descartes Systems Group. The default revenue input number comes from 0001 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 16.5% 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 84.8%.

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 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 7% 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 103.7%.

Life of production assets of 12.8 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 -11.8%. 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 - $498.812 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 76.815 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.

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COMPANY NEWS

▶ Descartes Systems: Fiscal 2Q Earnings Snapshot   [Sep-05-18 04:39PM  Associated Press]
▶ Descartes Acquires PinPoint   [Aug-22-18 06:45AM  GlobeNewswire]
▶ Descartes Acquires Velocity Mail   [Jun-25-18 06:30AM  GlobeNewswire]
▶ Descartes Announces Results of Annual Shareholder Meeting   [May-31-18 04:01PM  GlobeNewswire]
▶ Descartes Systems: Fiscal 1Q Earnings Snapshot   [May-30-18 04:09PM  Associated Press]
▶ Flavor Of The Month: Descartes Systems Group And More   [Apr-26-18 12:02PM  Simply Wall St.]
▶ March Growth Stocks To Look Out For   [Mar-26-18 12:02PM  Simply Wall St.]
▶ Descartes Systems misses 4Q profit forecasts   [Mar-05-18 04:43PM  Associated Press]
▶ Top 3 Growth Stocks For The Month   [Feb-23-18 11:02AM  Simply Wall St.]
▶ Descartes Acquires Aljex   [Feb-02-18 06:30AM  GlobeNewswire]
▶ New Strong Sell Stocks for January 30th   [Jan-30-18 06:40AM  Zacks]
▶ January Growth Stock Opportunities   [Jan-23-18 11:02AM  Simply Wall St.]
▶ December Top Growth Stocks To Buy   [Dec-14-17 11:02AM  Simply Wall St.]
▶ Descartes Systems misses 3Q profit forecasts   [Nov-29-17 04:11PM  Associated Press]
▶ 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]

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