Intrinsic value of Ethan Allen Interiors Inc. - ETH

Previous Close

$19.39

  Intrinsic Value

$13.66

stock screener

  Rating & Target

sell

-30%

Previous close

$19.39

 
Intrinsic value

$13.66

 
Up/down potential

-30%

 
Rating

sell

We calculate the intrinsic value of ETH 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 0.5

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  782
  800
  821
  844
  870
  898
  928
  961
  997
  1,035
  1,076
  1,120
  1,166
  1,216
  1,268
  1,324
  1,383
  1,445
  1,511
  1,580
  1,653
  1,730
  1,812
  1,898
  1,988
  2,083
  2,183
  2,289
  2,399
  2,516
Variable operating expenses, $m
  723
  739
  758
  779
  803
  829
  857
  887
  920
  955
  988
  1,028
  1,071
  1,116
  1,164
  1,215
  1,269
  1,327
  1,387
  1,451
  1,518
  1,589
  1,664
  1,742
  1,825
  1,913
  2,004
  2,101
  2,203
  2,310
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
  723
  739
  758
  779
  803
  829
  857
  887
  920
  955
  988
  1,028
  1,071
  1,116
  1,164
  1,215
  1,269
  1,327
  1,387
  1,451
  1,518
  1,589
  1,664
  1,742
  1,825
  1,913
  2,004
  2,101
  2,203
  2,310
Operating income, $m
  60
  61
  63
  65
  67
  69
  71
  74
  77
  80
  88
  92
  95
  100
  104
  108
  113
  118
  124
  129
  135
  142
  148
  155
  163
  171
  179
  187
  196
  206
EBITDA, $m
  83
  85
  87
  89
  92
  95
  98
  102
  106
  110
  114
  119
  124
  129
  134
  140
  146
  153
  160
  167
  175
  183
  192
  201
  211
  221
  231
  242
  254
  266
Interest expense (income), $m
  1
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
Earnings before tax, $m
  59
  61
  62
  64
  66
  68
  70
  72
  75
  78
  85
  88
  92
  95
  99
  103
  107
  112
  117
  122
  127
  132
  138
  144
  151
  158
  165
  173
  181
  189
Tax expense, $m
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
Net income, $m
  43
  44
  45
  47
  48
  50
  51
  53
  55
  57
  62
  65
  67
  70
  72
  75
  78
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  126
  132
  138

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
  541
  553
  568
  584
  601
  621
  642
  665
  689
  716
  744
  774
  807
  841
  877
  915
  956
  999
  1,045
  1,093
  1,143
  1,197
  1,253
  1,312
  1,375
  1,441
  1,510
  1,583
  1,659
  1,740
Adjusted assets (=assets-cash), $m
  541
  553
  568
  584
  601
  621
  642
  665
  689
  716
  744
  774
  807
  841
  877
  915
  956
  999
  1,045
  1,093
  1,143
  1,197
  1,253
  1,312
  1,375
  1,441
  1,510
  1,583
  1,659
  1,740
Revenue / Adjusted assets
  1.445
  1.447
  1.445
  1.445
  1.448
  1.446
  1.445
  1.445
  1.447
  1.446
  1.446
  1.447
  1.445
  1.446
  1.446
  1.447
  1.447
  1.446
  1.446
  1.446
  1.446
  1.445
  1.446
  1.447
  1.446
  1.446
  1.446
  1.446
  1.446
  1.446
Average production assets, $m
  297
  304
  312
  321
  330
  341
  353
  365
  379
  393
  409
  426
  443
  462
  482
  503
  525
  549
  574
  600
  628
  658
  689
  721
  755
  792
  830
  870
  912
  956
Working capital, $m
  73
  74
  76
  78
  81
  83
  86
  89
  93
  96
  100
  104
  108
  113
  118
  123
  129
  134
  140
  147
  154
  161
  169
  176
  185
  194
  203
  213
  223
  234
Total debt, $m
  5
  8
  12
  17
  22
  27
  33
  39
  46
  53
  61
  69
  78
  88
  98
  109
  120
  132
  144
  158
  172
  186
  202
  218
  236
  254
  273
  293
  315
  337
Total liabilities, $m
  150
  153
  157
  162
  167
  172
  178
  184
  191
  198
  206
  215
  223
  233
  243
  254
  265
  277
  289
  303
  317
  331
  347
  364
  381
  399
  418
  438
  460
  482
Total equity, $m
  391
  400
  410
  422
  435
  449
  464
  481
  498
  518
  538
  560
  583
  608
  634
  662
  691
  722
  755
  790
  827
  865
  906
  949
  994
  1,042
  1,092
  1,144
  1,200
  1,258
Total liabilities and equity, $m
  541
  553
  567
  584
  602
  621
  642
  665
  689
  716
  744
  775
  806
  841
  877
  916
  956
  999
  1,044
  1,093
  1,144
  1,196
  1,253
  1,313
  1,375
  1,441
  1,510
  1,582
  1,660
  1,740
Debt-to-equity ratio
  0.010
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.220
  0.230
  0.240
  0.240
  0.250
  0.260
  0.260
  0.270
Adjusted equity ratio
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  43
  44
  45
  47
  48
  50
  51
  53
  55
  57
  62
  65
  67
  70
  72
  75
  78
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  126
  132
  138
Depreciation, amort., depletion, $m
  23
  24
  24
  25
  25
  26
  27
  28
  28
  29
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
Funds from operations, $m
  67
  68
  70
  71
  73
  76
  78
  80
  83
  86
  88
  91
  95
  99
  103
  107
  112
  116
  121
  127
  132
  138
  145
  151
  158
  165
  173
  181
  190
  198
Change in working capital, $m
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
Cash from operations, $m
  65
  66
  68
  69
  71
  73
  75
  77
  80
  83
  84
  87
  91
  94
  98
  102
  106
  111
  115
  120
  126
  131
  137
  143
  150
  156
  164
  171
  179
  188
Maintenance CAPEX, $m
  -18
  -19
  -19
  -20
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
New CAPEX, $m
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
Cash from investing activities, $m
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -62
  -66
  -69
  -73
  -77
  -80
  -84
  -88
  -93
  -97
  -102
Free cash flow, $m
  41
  41
  41
  41
  41
  41
  42
  43
  43
  44
  44
  45
  46
  47
  49
  50
  52
  54
  56
  58
  60
  62
  64
  67
  70
  72
  76
  79
  82
  86
Issuance/(repayment) of debt, $m
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Total cash flow (excl. dividends), $m
  44
  44
  45
  45
  46
  47
  48
  49
  50
  51
  52
  53
  55
  57
  59
  61
  63
  66
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  103
  108
Retained Cash Flow (-), $m
  -7
  -9
  -10
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
  -58
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
  37
  35
  34
  34
  33
  33
  32
  32
  32
  32
  31
  31
  32
  32
  33
  33
  34
  35
  35
  36
  37
  38
  39
  40
  42
  43
  45
  46
  48
  50
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
  35
  32
  30
  28
  26
  24
  22
  20
  19
  17
  15
  13
  12
  11
  10
  8
  7
  6
  5
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
Current shareholders' claim on cash, %
  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
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Ethan Allen Interiors Inc. is an interior design company. The Company is a manufacturer and retailer of home furnishings. The Company operates through two segments, which include wholesale and retail. The Company is an international home fashion brand doing business in North America, Europe, Asia and the Middle East. It offers complimentary interior design service to its clients and sells a range of furniture products and decorative accents through ethanallen.com and a network of design centers in the United States and abroad. Its wholesale segment, principally involved in the development of the Ethan Allen brand, encompasses various aspects of design, manufacture, sourcing, sale, and distribution of its range of home furnishings and accents. The Company's retail segment sells home furnishings and accents to consumers through a network of Company-operated design centers. As of June 30, 2016, the Company owned and operated nine manufacturing facilities.

FINANCIAL RATIOS  of  Ethan Allen Interiors Inc. (ETH)

Valuation Ratios
P/E Ratio 14.8
Price to Sales 0.7
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 6.7
Price to Free Cash Flow 8.7
Growth Rates
Sales Growth Rate -3.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21.7%
Cap. Spend. - 3 Yr. Gr. Rate -1.1%
Financial Strength
Quick Ratio 19
Current Ratio 0
LT Debt to Equity 2.7%
Total Debt to Equity 3.5%
Interest Coverage 58
Management Effectiveness
Return On Assets 6.4%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 8.5%
Ret/ On T. Cap. - 3 Yr. Avg. 9.8%
Return On Equity 9.1%
Return On Equity - 3 Yr. Avg. 11.4%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 55%
Gross Margin - 3 Yr. Avg. 55.1%
EBITDA Margin 10.2%
EBITDA Margin - 3 Yr. Avg. 11.6%
Operating Margin 7.6%
Oper. Margin - 3 Yr. Avg. 9.2%
Pre-Tax Margin 7.5%
Pre-Tax Margin - 3 Yr. Avg. 8.7%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 5.6%
Effective Tax Rate 36.8%
Eff/ Tax Rate - 3 Yr. Avg. 35.7%
Payout Ratio 55.6%

ETH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ETH stock intrinsic value calculation we used $767 million for the last fiscal year's total revenue generated by Ethan Allen Interiors Inc.. The default revenue input number comes from 0001 income statement of Ethan Allen Interiors Inc.. 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 ETH stock valuation model: a) initial revenue growth rate of 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 ETH is calculated based on our internal credit rating of Ethan Allen Interiors Inc., 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 Ethan Allen Interiors Inc..
    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 ETH stock the variable cost ratio is equal to 92.4%.

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 ETH 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 Ethan Allen Interiors Inc..

Corporate tax rate of 27% is the nominal tax rate for Ethan Allen Interiors Inc.. 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 ETH 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 ETH are equal to 38%.

Life of production assets of 15.8 years is the average useful life of capital assets used in Ethan Allen Interiors Inc. 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 ETH 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 - $383.731 million for Ethan Allen Interiors Inc. - 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 26.580 million for Ethan Allen Interiors Inc. 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 Ethan Allen Interiors Inc. at the current share price and the inputted number of shares is $0.5 billion.

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