Intrinsic value of Genomic Health - GHDX

Previous Close

$33.72

  Intrinsic Value

$3.10

stock screener

  Rating & Target

str. sell

-91%

Previous close

$33.72

 
Intrinsic value

$3.10

 
Up/down potential

-91%

 
Rating

str. sell

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

We calculate the intrinsic value of GHDX 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 1.2

 

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, %
  14.29
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
Revenue, $m
  328
  340
  353
  367
  382
  398
  415
  433
  451
  472
  493
  515
  539
  564
  590
  618
  647
  678
  710
  744
  780
  818
  858
  900
  944
  990
  1,038
  1,089
  1,143
  1,199
  1,259
Variable operating expenses, $m
 
  183
  190
  197
  205
  214
  223
  232
  242
  253
  265
  277
  289
  303
  317
  332
  347
  364
  381
  400
  419
  439
  461
  483
  507
  531
  558
  585
  614
  644
  676
Fixed operating expenses, $m
 
  175
  180
  184
  189
  193
  198
  203
  208
  214
  219
  224
  230
  236
  242
  248
  254
  260
  267
  273
  280
  287
  294
  302
  309
  317
  325
  333
  341
  350
  359
Total operating expenses, $m
  343
  358
  370
  381
  394
  407
  421
  435
  450
  467
  484
  501
  519
  539
  559
  580
  601
  624
  648
  673
  699
  726
  755
  785
  816
  848
  883
  918
  955
  994
  1,035
Operating income, $m
  -15
  -18
  -16
  -14
  -12
  -9
  -6
  -3
  1
  5
  9
  14
  19
  25
  32
  38
  46
  54
  62
  71
  81
  92
  103
  115
  128
  141
  156
  171
  188
  205
  224
EBITDA, $m
  -6
  -9
  -7
  -5
  -2
  1
  4
  8
  12
  17
  22
  27
  33
  40
  47
  54
  62
  71
  80
  90
  101
  112
  125
  138
  152
  167
  182
  199
  217
  236
  256
Interest expense (income), $m
  0
  0
  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
  4
  4
  4
Earnings before tax, $m
  -13
  -18
  -16
  -14
  -12
  -10
  -7
  -3
  0
  4
  9
  13
  19
  24
  30
  37
  44
  52
  60
  69
  79
  89
  100
  112
  125
  138
  153
  168
  184
  201
  220
Tax expense, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  4
  5
  7
  8
  10
  12
  14
  16
  19
  21
  24
  27
  30
  34
  37
  41
  45
  50
  54
  59
Net income, $m
  -14
  -18
  -16
  -14
  -12
  -10
  -7
  -3
  0
  3
  6
  10
  14
  18
  22
  27
  32
  38
  44
  51
  58
  65
  73
  82
  91
  101
  111
  123
  134
  147
  160

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  97
  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
  201
  108
  112
  116
  121
  126
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  247
  259
  272
  285
  299
  314
  329
  345
  362
  380
  399
Adjusted assets (=assets-cash), $m
  104
  108
  112
  116
  121
  126
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  247
  259
  272
  285
  299
  314
  329
  345
  362
  380
  399
Revenue / Adjusted assets
  3.154
  3.148
  3.152
  3.164
  3.157
  3.159
  3.168
  3.161
  3.154
  3.168
  3.160
  3.160
  3.152
  3.151
  3.155
  3.153
  3.156
  3.153
  3.156
  3.153
  3.158
  3.158
  3.154
  3.158
  3.157
  3.153
  3.155
  3.157
  3.157
  3.155
  3.155
Average production assets, $m
  42
  44
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
  121
  127
  133
  139
  146
  154
  161
Working capital, $m
  105
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
Total debt, $m
  0
  2
  3
  5
  7
  10
  12
  14
  17
  20
  23
  26
  29
  32
  36
  40
  44
  48
  53
  57
  62
  67
  73
  79
  85
  91
  98
  105
  112
  120
  128
Total liabilities, $m
  45
  47
  48
  50
  52
  55
  57
  59
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  98
  102
  107
  112
  118
  124
  130
  136
  143
  150
  157
  165
  173
Total equity, $m
  156
  61
  63
  66
  69
  72
  75
  78
  81
  85
  89
  93
  97
  101
  106
  111
  116
  122
  128
  134
  140
  147
  154
  162
  170
  178
  187
  196
  205
  216
  226
Total liabilities and equity, $m
  201
  108
  111
  116
  121
  127
  132
  137
  143
  150
  157
  164
  171
  178
  187
  196
  205
  215
  226
  236
  247
  259
  272
  286
  300
  314
  330
  346
  362
  381
  399
Debt-to-equity ratio
  0.000
  0.030
  0.050
  0.080
  0.110
  0.130
  0.160
  0.180
  0.210
  0.230
  0.260
  0.280
  0.300
  0.320
  0.340
  0.360
  0.380
  0.390
  0.410
  0.430
  0.440
  0.460
  0.470
  0.490
  0.500
  0.510
  0.520
  0.530
  0.540
  0.550
  0.560
Adjusted equity ratio
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -14
  -18
  -16
  -14
  -12
  -10
  -7
  -3
  0
  3
  6
  10
  14
  18
  22
  27
  32
  38
  44
  51
  58
  65
  73
  82
  91
  101
  111
  123
  134
  147
  160
Depreciation, amort., depletion, $m
  9
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
Funds from operations, $m
  13
  -9
  -7
  -5
  -2
  1
  4
  8
  12
  15
  19
  23
  27
  32
  37
  43
  49
  55
  62
  70
  78
  86
  95
  105
  115
  126
  138
  150
  164
  178
  193
Change in working capital, $m
  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
  1
Cash from operations, $m
  13
  -9
  -7
  -5
  -3
  0
  4
  7
  11
  15
  18
  22
  27
  32
  37
  42
  48
  55
  62
  69
  77
  85
  94
  104
  114
  125
  137
  149
  162
  176
  191
Maintenance CAPEX, $m
  0
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
New CAPEX, $m
  -20
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
Cash from investing activities, $m
  -19
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -15
  -15
  -16
  -16
  -17
  -17
  -19
  -20
  -21
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -34
  -35
  -36
  -39
Free cash flow, $m
  -6
  -19
  -18
  -16
  -14
  -12
  -9
  -6
  -2
  1
  4
  7
  11
  15
  19
  24
  29
  34
  40
  46
  53
  60
  68
  77
  86
  95
  105
  116
  128
  140
  153
Issuance/(repayment) of debt, $m
  0
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Issuance/(repurchase) of shares, $m
  17
  20
  19
  17
  15
  12
  10
  7
  3
  1
  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  
  14
  22
  21
  19
  17
  14
  12
  9
  6
  4
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Total cash flow (excl. dividends), $m
  8
  2
  2
  3
  3
  3
  3
  3
  4
  4
  6
  10
  14
  18
  23
  27
  33
  38
  44
  51
  58
  66
  74
  82
  92
  101
  112
  123
  135
  148
  161
Retained Cash Flow (-), $m
  -16
  -20
  -19
  -17
  -15
  -12
  -10
  -7
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
Prev. year cash balance distribution, $m
 
  97
  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
 
  79
  -16
  -14
  -12
  -9
  -6
  -3
  0
  0
  3
  6
  10
  13
  18
  22
  27
  33
  39
  45
  52
  59
  67
  75
  84
  93
  103
  114
  125
  138
  150
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
 
  76
  -15
  -12
  -10
  -7
  -5
  -2
  0
  0
  1
  3
  4
  5
  6
  7
  7
  7
  7
  7
  7
  6
  6
  5
  4
  4
  3
  2
  2
  2
  1
Current shareholders' claim on cash, %
  100
  95.7
  92.0
  88.8
  86.3
  84.2
  82.7
  81.8
  81.3
  81.2
  81.2
  81.2
  81.2
  81.2
  81.2
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Genomic Health, Inc. is a healthcare company that provides genomic-based diagnostic tests to personalize cancer treatment. The Company develops and commercializes genomic-based clinical laboratory services. The Company's Oncotype IQ Genomic Intelligence Platform is consisted of its flagship line of Oncotype DX gene expression tests, as well as its Oncotype SEQ Liquid Select test. Its research and development activities are focused on developing a pipeline of tests to optimize the treatment of various cancers including breast, colon, prostate and other cancers. It offers its Oncotype DX tests as a clinical laboratory service, where it analyzes the expression levels of genes in tumor tissue samples and provides physicians with a quantitative gene expression profile expressed as a single quantitative score, which it calls a Recurrence Score for invasive breast cancer and colon cancer, a DCIS Score for ductal carcinoma in situ (DCIS), and a Genomic Prostate Score, for prostate cancer.

FINANCIAL RATIOS  of  Genomic Health (GHDX)

Valuation Ratios
P/E Ratio -81.5
Price to Sales 3.5
Price to Book 7.3
Price to Tangible Book
Price to Cash Flow 87.7
Price to Free Cash Flow -163
Growth Rates
Sales Growth Rate 14.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13%
Cap. Spend. - 3 Yr. Gr. Rate 12.7%
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 -7.3%
Ret/ On Assets - 3 Yr. Avg. -12.9%
Return On Total Capital -9.5%
Ret/ On T. Cap. - 3 Yr. Avg. -16.6%
Return On Equity -9.5%
Return On Equity - 3 Yr. Avg. -16.6%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 82.6%
Gross Margin - 3 Yr. Avg. 82.1%
EBITDA Margin -1.2%
EBITDA Margin - 3 Yr. Avg. -5.6%
Operating Margin -4.6%
Oper. Margin - 3 Yr. Avg. -8.3%
Pre-Tax Margin -4%
Pre-Tax Margin - 3 Yr. Avg. -8.2%
Net Profit Margin -4.3%
Net Profit Margin - 3 Yr. Avg. -8.3%
Effective Tax Rate -7.7%
Eff/ Tax Rate - 3 Yr. Avg. -3%
Payout Ratio 0%

GHDX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GHDX stock intrinsic value calculation we used $328 million for the last fiscal year's total revenue generated by Genomic Health. The default revenue input number comes from 2016 income statement of Genomic Health. 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 GHDX stock valuation model: a) initial revenue growth rate of 3.7% 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 GHDX is calculated based on our internal credit rating of Genomic Health, 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 Genomic Health.
    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 GHDX stock the variable cost ratio is equal to 53.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $171 million in the base year in the intrinsic value calculation for GHDX 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 Genomic Health.

Corporate tax rate of 27% is the nominal tax rate for Genomic Health. 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 GHDX 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 GHDX are equal to 12.8%.

Life of production assets of 4.7 years is the average useful life of capital assets used in Genomic Health 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 GHDX is equal to 2.4%. 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 - $156 million for Genomic Health - 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 34.698 million for Genomic Health 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 Genomic Health at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ Quest, LabCorp Are Big 'Losers' Under Medicare Overhaul: Analyst   [Sep-25-17 04:25PM  Investor's Business Daily]
▶ Genomic Health, Inc.: Still Waiting for Reimbursement   [Aug-03-17 10:00AM  Motley Fool]
▶ Genomic Health reports 2Q loss   [Aug-01-17 10:12PM  Associated Press]
▶ Genomic Health, Inc. Waits for Reimbursement   [May-15-17 05:00PM  Motley Fool]
▶ Genomic Health reports 1Q loss   [May-09-17 05:40PM  Associated Press]
▶ 3 Most Wildly Overvalued Stocks in Healthcare   [Feb-24-17 09:24AM  at Motley Fool]
▶ Why Genomic Health Inc. Jumped Higher Today   [Feb-15-17 07:34PM  at Motley Fool]
▶ Genomic Health, Inc. Swings to a Profit   [04:17PM  at Motley Fool]
▶ Why Exact Sciences' Stock Could Go Much Higher   [Jan-14-17 12:10PM  at Motley Fool]
▶ Is Genomic Health, Inc. (GHDX) A Good Stock To Buy?   [Dec-14-16 11:29PM  at Insider Monkey]
▶ Genomic Health, Inc.: Almost at Breakeven   [Nov-03-16 10:23PM  at Motley Fool]
Financial statements of GHDX
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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