Intrinsic value of EDAP TMS ADR - EDAP

Previous Close

$3.14

  Intrinsic Value

$3.33

stock screener

  Rating & Target

hold

+6%

  Value-price divergence*

-83%

Previous close

$3.14

 
Intrinsic value

$3.33

 
Up/down potential

+6%

 
Rating

hold

 
Value-price divergence*

-83%

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

We calculate the intrinsic value of EDAP 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 2016), $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
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, %
  11.76
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
Revenue, $m
  38
  42
  47
  51
  56
  61
  66
  72
  78
  84
  90
  96
  103
  110
  117
  124
  132
  140
  149
  157
  167
  176
  186
  196
  207
  219
  231
  243
  256
  270
  284
Variable operating expenses, $m
 
  32
  36
  39
  43
  46
  50
  55
  59
  63
  68
  73
  78
  83
  88
  94
  100
  106
  112
  119
  126
  133
  141
  148
  157
  165
  174
  184
  193
  204
  214
Fixed operating expenses, $m
 
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  16
  16
  16
  17
Total operating expenses, $m
  37
  40
  44
  48
  52
  55
  59
  65
  69
  73
  78
  83
  89
  94
  99
  106
  112
  118
  124
  132
  139
  146
  155
  162
  171
  180
  189
  200
  209
  220
  231
Operating income, $m
  0
  2
  3
  4
  5
  6
  7
  8
  9
  10
  11
  13
  14
  16
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  47
  50
  53
EBITDA, $m
  1
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
  57
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
Earnings before tax, $m
  5
  2
  3
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  17
  19
  20
  22
  24
  25
  27
  29
  31
  33
  35
  38
  40
  43
  46
  48
Tax expense, $m
  1
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
Net income, $m
  4
  1
  2
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  23
  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
  29
  32
  35
  38
  42
  45
  49
  53
  57
  61
  66
  70
  75
  80
  85
  90
  96
  102
  108
  114
  120
  127
  134
  142
  150
  158
  166
  175
  185
  194
Adjusted assets (=assets-cash), $m
  26
  29
  32
  35
  38
  42
  45
  49
  53
  57
  61
  66
  70
  75
  80
  85
  90
  96
  102
  108
  114
  120
  127
  134
  142
  150
  158
  166
  175
  185
  194
Revenue / Adjusted assets
  1.462
  1.448
  1.469
  1.457
  1.474
  1.452
  1.467
  1.469
  1.472
  1.474
  1.475
  1.455
  1.471
  1.467
  1.463
  1.459
  1.467
  1.458
  1.461
  1.454
  1.465
  1.467
  1.465
  1.463
  1.458
  1.460
  1.462
  1.464
  1.463
  1.459
  1.464
Average production assets, $m
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Working capital, $m
  27
  8
  9
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  20
  21
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
Total debt, $m
  7
  6
  9
  11
  14
  16
  19
  22
  25
  28
  31
  35
  38
  42
  45
  49
  53
  58
  62
  67
  72
  77
  82
  87
  93
  99
  105
  112
  119
  126
  133
Total liabilities, $m
  23
  22
  25
  27
  30
  32
  35
  38
  41
  44
  47
  51
  54
  58
  61
  65
  69
  74
  78
  83
  88
  93
  98
  103
  109
  115
  121
  128
  135
  142
  149
Total equity, $m
  26
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  36
  38
  40
  43
  45
Total liabilities and equity, $m
  49
  29
  32
  35
  39
  42
  45
  49
  53
  57
  61
  66
  70
  75
  79
  85
  90
  96
  101
  108
  114
  121
  127
  134
  142
  150
  157
  166
  175
  185
  194
Debt-to-equity ratio
  0.269
  0.930
  1.160
  1.350
  1.520
  1.670
  1.800
  1.920
  2.020
  2.120
  2.200
  2.280
  2.340
  2.410
  2.460
  2.510
  2.560
  2.610
  2.650
  2.690
  2.720
  2.750
  2.780
  2.810
  2.840
  2.870
  2.890
  2.910
  2.930
  2.950
  2.970
Adjusted equity ratio
  0.192
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  1
  2
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
Funds from operations, $m
  1
  2
  3
  3
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
Change in working capital, $m
  0
  1
  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
  3
  3
Cash from operations, $m
  1
  1
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -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
  -1
Cash from investing activities, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
Free cash flow, $m
  1
  0
  1
  2
  2
  3
  3
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  32
Issuance/(repayment) of debt, $m
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Issuance/(repurchase) of shares, $m
  7
  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  
  8
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Total cash flow (excl. dividends), $m
  9
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  10
  11
  12
  14
  15
  16
  17
  18
  20
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
Retained Cash Flow (-), $m
  -11
  -1
  -1
  -1
  -1
  -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
Prev. year cash balance distribution, $m
 
  20
  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
 
  22
  3
  3
  4
  5
  5
  6
  7
  8
  9
  9
  10
  11
  12
  13
  15
  16
  17
  18
  20
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
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
 
  21
  2
  3
  3
  4
  4
  4
  4
  4
  5
  4
  4
  4
  4
  4
  4
  3
  3
  3
  2
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
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
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EDAP TMS S.A. (EDAP) is a holding company engaged in developing and marketing the Ablatherm and Focal One devices. The Company operates two divisions: High Intensity Focused Ultrasound (HIFU) and Urology Devices and Services (UDS) (including lithotripsy activities). The Company is developing HIFU technology for the treatment of certain other types of tumors. The Company also produces and commercializes medical equipment for treatment of urinary tract stones using extra-corporeal shockwave lithotripsy (ESWL) and distributes other types of urology devices in certain countries. The HIFU division is engaged in the development, manufacturing and marketing of medical devices based on HIFU technology for the invasive treatment of urological and other clinical indications. The UDS division is engaged in the development, marketing, manufacturing and servicing of medical devices for the invasive diagnosis or treatment of urological disorders, urinary stones, and other clinical indications.

FINANCIAL RATIOS  of  EDAP TMS ADR (EDAP)

Valuation Ratios
P/E Ratio 22.6
Price to Sales 2.4
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 90.2
Price to Free Cash Flow 90.2
Growth Rates
Sales Growth Rate 11.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 8
Current Ratio 0
LT Debt to Equity 15.4%
Total Debt to Equity 26.9%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.9%
Ret/ On Assets - 3 Yr. Avg. 0.1%
Return On Total Capital 14%
Ret/ On T. Cap. - 3 Yr. Avg. 0.1%
Return On Equity 19.5%
Return On Equity - 3 Yr. Avg. -0.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 44.7%
Gross Margin - 3 Yr. Avg. 43.9%
EBITDA Margin 15.8%
EBITDA Margin - 3 Yr. Avg. 6.5%
Operating Margin 2.6%
Oper. Margin - 3 Yr. Avg. -1.5%
Pre-Tax Margin 13.2%
Pre-Tax Margin - 3 Yr. Avg. 3.4%
Net Profit Margin 10.5%
Net Profit Margin - 3 Yr. Avg. 0.4%
Effective Tax Rate 20%
Eff/ Tax Rate - 3 Yr. Avg. -26.7%
Payout Ratio 0%

EDAP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EDAP stock intrinsic value calculation we used $38 million for the last fiscal year's total revenue generated by EDAP TMS ADR. The default revenue input number comes from 2016 income statement of EDAP TMS ADR. 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 EDAP stock valuation model: a) initial revenue growth rate of 11.1% 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 EDAP is calculated based on our internal credit rating of EDAP TMS ADR, 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 EDAP TMS ADR.
    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 EDAP stock the variable cost ratio is equal to 76.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $8 million in the base year in the intrinsic value calculation for EDAP 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 EDAP TMS ADR.

Corporate tax rate of 27% is the nominal tax rate for EDAP TMS ADR. 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 EDAP 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 EDAP are equal to 7.9%.

Life of production assets of 6 years is the average useful life of capital assets used in EDAP TMS ADR 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 EDAP is equal to 18.4%. 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 - $26 million for EDAP TMS ADR - 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 30.901 million for EDAP TMS ADR 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 EDAP TMS ADR at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ New Strong Buy Stocks for June 7th   [Jun-07-17 10:10AM  Zacks]
▶ EDAP TMS SA Reports First Quarter 2017 Results   [May-17-17 04:01PM  GlobeNewswire]
▶ EDAP Achieves 63% Growth in HIFU Revenue in 2016   [Apr-03-17 04:02PM  GlobeNewswire]
▶ EDAP Announces Preliminary Unaudited Full Year 2016 Revenue   [Feb-23-17 07:31AM  GlobeNewswire]
▶ EDAP to Report First Quarter 2016 Results on May 18, 2016   [May-10-16 08:30AM  GlobeNewswire]
▶ EDAPs Ablatherm® Robotic HIFU Deployed by HIFU Solution   [Apr-18-16 08:30AM  GlobeNewswire]
▶ EDAP TMS SA Closes $11.5 Million Registered Direct Offering   [Apr-14-16 03:15PM  GlobeNewswire]
▶ EDAP Announces Results of Worlds First Focal HIFU Trial   [Jan-19-16 08:31AM  GlobeNewswire]
Financial statements of EDAP
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.

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