Intrinsic value of HealthStream - HSTM

Previous Close

$24.13

  Intrinsic Value

$10.05

stock screener

  Rating & Target

str. sell

-58%

Previous close

$24.13

 
Intrinsic value

$10.05

 
Up/down potential

-58%

 
Rating

str. sell

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

We calculate the intrinsic value of HSTM 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  8.13
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
Revenue, $m
  226
  249
  274
  299
  326
  353
  382
  412
  443
  475
  508
  543
  580
  617
  656
  697
  740
  784
  830
  878
  928
  981
  1,035
  1,093
  1,152
  1,215
  1,280
  1,349
  1,420
  1,495
  1,574
Variable operating expenses, $m
 
  232
  253
  276
  299
  324
  349
  376
  403
  432
  461
  481
  513
  546
  581
  617
  655
  694
  735
  777
  822
  868
  917
  967
  1,020
  1,075
  1,133
  1,194
  1,257
  1,324
  1,393
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
  220
  232
  253
  276
  299
  324
  349
  376
  403
  432
  461
  481
  513
  546
  581
  617
  655
  694
  735
  777
  822
  868
  917
  967
  1,020
  1,075
  1,133
  1,194
  1,257
  1,324
  1,393
Operating income, $m
  6
  18
  20
  23
  26
  29
  33
  36
  40
  43
  47
  62
  66
  71
  75
  80
  85
  90
  95
  101
  106
  112
  119
  125
  132
  139
  147
  155
  163
  171
  180
EBITDA, $m
  28
  41
  44
  49
  53
  57
  62
  67
  72
  77
  83
  88
  94
  100
  107
  113
  120
  127
  135
  143
  151
  159
  168
  178
  187
  197
  208
  219
  231
  243
  256
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
Earnings before tax, $m
  6
  18
  20
  22
  25
  28
  31
  34
  37
  40
  43
  57
  61
  65
  69
  73
  77
  81
  86
  90
  95
  100
  106
  112
  117
  124
  130
  137
  144
  151
  159
Tax expense, $m
  2
  5
  5
  6
  7
  8
  8
  9
  10
  11
  12
  16
  16
  17
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
Net income, $m
  4
  13
  15
  16
  18
  20
  22
  25
  27
  29
  31
  42
  45
  47
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  110
  116

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  103
  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
  396
  323
  355
  388
  422
  458
  495
  534
  574
  616
  660
  705
  752
  800
  851
  904
  959
  1,017
  1,076
  1,139
  1,204
  1,272
  1,343
  1,417
  1,495
  1,576
  1,660
  1,749
  1,842
  1,939
  2,041
Adjusted assets (=assets-cash), $m
  293
  323
  355
  388
  422
  458
  495
  534
  574
  616
  660
  705
  752
  800
  851
  904
  959
  1,017
  1,076
  1,139
  1,204
  1,272
  1,343
  1,417
  1,495
  1,576
  1,660
  1,749
  1,842
  1,939
  2,041
Revenue / Adjusted assets
  0.771
  0.771
  0.772
  0.771
  0.773
  0.771
  0.772
  0.772
  0.772
  0.771
  0.770
  0.770
  0.771
  0.771
  0.771
  0.771
  0.772
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
Average production assets, $m
  94
  104
  114
  124
  135
  147
  159
  171
  184
  198
  212
  226
  241
  257
  273
  290
  308
  326
  345
  365
  386
  408
  431
  454
  479
  505
  533
  561
  591
  622
  655
Working capital, $m
  82
  -23
  -25
  -28
  -30
  -33
  -36
  -38
  -41
  -44
  -47
  -51
  -54
  -57
  -61
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -102
  -107
  -113
  -119
  -125
  -132
  -139
  -146
Total debt, $m
  0
  11
  23
  35
  48
  62
  76
  90
  105
  121
  137
  154
  172
  190
  209
  229
  250
  271
  294
  317
  341
  367
  394
  421
  450
  481
  513
  546
  581
  617
  655
Total liabilities, $m
  110
  121
  133
  145
  158
  172
  186
  200
  215
  231
  247
  264
  282
  300
  319
  339
  360
  381
  404
  427
  451
  477
  504
  531
  560
  591
  623
  656
  691
  727
  765
Total equity, $m
  286
  202
  222
  242
  264
  286
  310
  334
  359
  385
  412
  440
  470
  500
  532
  565
  600
  635
  673
  712
  752
  795
  839
  886
  934
  985
  1,038
  1,093
  1,151
  1,212
  1,276
Total liabilities and equity, $m
  396
  323
  355
  387
  422
  458
  496
  534
  574
  616
  659
  704
  752
  800
  851
  904
  960
  1,016
  1,077
  1,139
  1,203
  1,272
  1,343
  1,417
  1,494
  1,576
  1,661
  1,749
  1,842
  1,939
  2,041
Debt-to-equity ratio
  0.000
  0.060
  0.100
  0.150
  0.180
  0.220
  0.240
  0.270
  0.290
  0.310
  0.330
  0.350
  0.370
  0.380
  0.390
  0.410
  0.420
  0.430
  0.440
  0.450
  0.450
  0.460
  0.470
  0.480
  0.480
  0.490
  0.490
  0.500
  0.500
  0.510
  0.510
Adjusted equity ratio
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625
  0.625

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  13
  15
  16
  18
  20
  22
  25
  27
  29
  31
  42
  45
  47
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  110
  116
Depreciation, amort., depletion, $m
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  26
  28
  30
  31
  33
  35
  37
  40
  42
  44
  47
  50
  52
  55
  58
  61
  64
  68
  71
  75
Funds from operations, $m
  17
  36
  39
  42
  45
  48
  52
  55
  59
  63
  67
  68
  72
  77
  81
  86
  91
  97
  102
  108
  114
  120
  127
  134
  141
  148
  156
  164
  173
  182
  191
Change in working capital, $m
  -7
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
Cash from operations, $m
  24
  38
  41
  44
  47
  51
  54
  58
  62
  66
  70
  71
  76
  80
  85
  90
  95
  101
  107
  112
  119
  125
  132
  139
  146
  154
  162
  171
  179
  189
  198
Maintenance CAPEX, $m
  0
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -40
  -42
  -44
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -68
  -71
New CAPEX, $m
  -15
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
Cash from investing activities, $m
  -57
  -21
  -22
  -24
  -25
  -27
  -29
  -30
  -33
  -34
  -37
  -38
  -41
  -44
  -46
  -48
  -51
  -53
  -56
  -60
  -63
  -66
  -70
  -74
  -77
  -81
  -85
  -89
  -94
  -99
  -104
Free cash flow, $m
  -33
  17
  19
  20
  22
  24
  25
  27
  29
  31
  33
  32
  35
  37
  39
  42
  44
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  94
Issuance/(repayment) of debt, $m
  0
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  36
  38
Issuance/(repurchase) of shares, $m
  0
  6
  5
  4
  3
  2
  1
  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
  17
  17
  16
  16
  15
  15
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  36
  38
Total cash flow (excl. dividends), $m
  -32
  35
  36
  37
  38
  39
  40
  42
  44
  47
  50
  49
  52
  55
  58
  62
  65
  69
  72
  76
  80
  84
  89
  93
  98
  103
  109
  114
  120
  126
  133
Retained Cash Flow (-), $m
  -6
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
Prev. year cash balance distribution, $m
 
  103
  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
 
  119
  16
  16
  17
  17
  17
  18
  19
  21
  22
  21
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  44
  47
  50
  53
  56
  59
  62
  65
  69
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
 
  114
  15
  14
  14
  13
  12
  12
  12
  12
  12
  10
  10
  9
  9
  8
  8
  7
  6
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  98.8
  97.8
  97.1
  96.7
  96.4
  96.3
  96.3
  96.3
  96.3
  96.3
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HealthStream, Inc. (HealthStream) provides workforce, patient experience and provider solutions for healthcare organizations. The Company operates in three segments: HealthStream Workforce Solutions, HealthStream Patient Experience Solutions and HealthStream Provider Solutions. HealthStream's products and services are organized into three segments: Workforce Solutions, Patient Experience Solutions, and Provider Solutions. HealthStream's solutions are provided to a range of customers within the healthcare industry across the continuum of care. Delivered primarily as Software-as-a-Service (SaaS), the Company's solutions focus on challenges facing the healthcare workforce and healthcare organizations, including the need to manage, retain, engage and develop healthcare workforce talent; meet compliance requirements; manage ongoing medical staff credentialing and privileging processes, and deliver patient experiences of care in healthcare organizations.

FINANCIAL RATIOS  of  HealthStream (HSTM)

Valuation Ratios
P/E Ratio 191.5
Price to Sales 3.4
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 31.9
Price to Free Cash Flow 85.1
Growth Rates
Sales Growth Rate 8.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 10.8%
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 1%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 1.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 1.4%
Return On Equity - 3 Yr. Avg. 3.9%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 57.1%
Gross Margin - 3 Yr. Avg. 57.1%
EBITDA Margin 12.4%
EBITDA Margin - 3 Yr. Avg. 14.5%
Operating Margin 2.7%
Oper. Margin - 3 Yr. Avg. 6.4%
Pre-Tax Margin 2.7%
Pre-Tax Margin - 3 Yr. Avg. 6.4%
Net Profit Margin 1.8%
Net Profit Margin - 3 Yr. Avg. 4%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 36.7%
Payout Ratio 0%

HSTM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSTM stock intrinsic value calculation we used $226 million for the last fiscal year's total revenue generated by HealthStream. The default revenue input number comes from 2016 income statement of HealthStream. 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 HSTM stock valuation model: a) initial revenue growth rate of 10.3% 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 HSTM is calculated based on our internal credit rating of HealthStream, 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 HealthStream.
    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 HSTM stock the variable cost ratio is equal to 93.4%.

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 HSTM 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 HealthStream.

Corporate tax rate of 27% is the nominal tax rate for HealthStream. 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 HSTM 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 HSTM are equal to 41.6%.

Life of production assets of 8.7 years is the average useful life of capital assets used in HealthStream 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 HSTM 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 - $286 million for HealthStream - 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 31.924 million for HealthStream 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 HealthStream at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ HealthStream beats Street 3Q forecasts   [Oct-23-17 04:39PM  Associated Press]
▶ HealthStream (HSTM) Jumps: Stock Rises 5%   [Oct-12-17 08:40AM  Zacks]
▶ HealthStream tops Street 2Q forecasts   [Jul-24-17 09:45PM  Associated Press]
▶ HealthStream Announces Management Team Changes   [Jul-11-17 09:25AM  Business Wire]
▶ ETFs with exposure to HealthStream, Inc. : June 27, 2017   [Jun-27-17 03:19PM  Capital Cube]
▶ ETFs with exposure to HealthStream, Inc. : May 26, 2017   [May-26-17 01:11PM  Capital Cube]
▶ ETFs with exposure to HealthStream, Inc. : May 5, 2017   [May-05-17 04:13PM  Capital Cube]
▶ Here's Why HealthStream, Inc. Stock Is Soaring   [Apr-25-17 12:29PM  Motley Fool]
▶ HealthStream tops Street 1Q forecasts   [Apr-24-17 04:36PM  Associated Press]
▶ HealthStream reports 4Q loss   [Feb-21-17 05:20PM  Associated Press]
▶ Is Hibbett Sports, Inc. (HIBB) A Good Stock To Buy?   [Dec-12-16 08:13AM  at Insider Monkey]
▶ HealthStream Acquires Morrisey Associates   [04:30PM  Business Wire]
Financial statements of HSTM
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