Intrinsic value of Information Services Group, Inc. - III

Previous Close

$3.20

  Intrinsic Value

$0.80

stock screener

  Rating & Target

str. sell

-75%

Previous close

$3.20

 
Intrinsic value

$0.80

 
Up/down potential

-75%

 
Rating

str. sell

We calculate the intrinsic value of III 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 0.1

 

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
  275
  282
  289
  297
  306
  316
  327
  338
  351
  364
  379
  394
  411
  428
  446
  466
  487
  509
  532
  556
  582
  609
  638
  668
  700
  733
  769
  806
  845
  886
Variable operating expenses, $m
  212
  217
  222
  229
  236
  243
  251
  260
  270
  280
  291
  303
  315
  329
  343
  358
  374
  391
  408
  427
  447
  468
  490
  513
  538
  563
  590
  619
  649
  680
Fixed operating expenses, $m
  54
  55
  57
  58
  59
  60
  62
  63
  64
  66
  67
  69
  70
  72
  73
  75
  77
  78
  80
  82
  84
  86
  87
  89
  91
  93
  95
  97
  100
  102
Total operating expenses, $m
  266
  272
  279
  287
  295
  303
  313
  323
  334
  346
  358
  372
  385
  401
  416
  433
  451
  469
  488
  509
  531
  554
  577
  602
  629
  656
  685
  716
  749
  782
Operating income, $m
  9
  9
  10
  11
  11
  12
  14
  15
  16
  18
  20
  23
  25
  27
  30
  33
  36
  40
  43
  47
  51
  56
  60
  66
  71
  77
  83
  89
  96
  104
EBITDA, $m
  16
  17
  18
  18
  19
  21
  22
  24
  26
  28
  30
  32
  35
  38
  41
  44
  48
  52
  56
  61
  66
  71
  76
  82
  88
  95
  102
  109
  117
  125
Interest expense (income), $m
  2
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  22
  23
  24
  25
  27
Earnings before tax, $m
  3
  3
  3
  3
  4
  4
  5
  6
  7
  9
  11
  12
  14
  16
  18
  20
  23
  25
  28
  31
  35
  38
  42
  46
  51
  55
  60
  65
  71
  77
Tax expense, $m
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  8
  8
  9
  10
  11
  12
  14
  15
  16
  18
  19
  21
Net income, $m
  2
  2
  2
  2
  3
  3
  4
  5
  5
  6
  8
  9
  10
  12
  13
  15
  17
  19
  21
  23
  25
  28
  31
  34
  37
  40
  44
  48
  52
  56

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
  229
  235
  241
  247
  255
  263
  272
  282
  292
  303
  315
  328
  342
  356
  372
  388
  405
  423
  443
  463
  485
  507
  531
  556
  583
  611
  640
  671
  703
  737
Adjusted assets (=assets-cash), $m
  229
  235
  241
  247
  255
  263
  272
  282
  292
  303
  315
  328
  342
  356
  372
  388
  405
  423
  443
  463
  485
  507
  531
  556
  583
  611
  640
  671
  703
  737
Revenue / Adjusted assets
  1.201
  1.200
  1.199
  1.202
  1.200
  1.202
  1.202
  1.199
  1.202
  1.201
  1.203
  1.201
  1.202
  1.202
  1.199
  1.201
  1.202
  1.203
  1.201
  1.201
  1.200
  1.201
  1.202
  1.201
  1.201
  1.200
  1.202
  1.201
  1.202
  1.202
Average production assets, $m
  64
  66
  68
  70
  72
  74
  76
  79
  82
  85
  89
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  143
  149
  156
  164
  172
  180
  189
  198
  207
Working capital, $m
  38
  39
  40
  41
  43
  44
  45
  47
  49
  51
  53
  55
  57
  59
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  97
  102
  107
  112
  117
  123
Total debt, $m
  118
  121
  126
  130
  136
  142
  148
  155
  163
  171
  179
  188
  198
  209
  220
  231
  244
  257
  271
  285
  301
  317
  334
  352
  371
  391
  412
  434
  457
  482
Total liabilities, $m
  164
  168
  173
  177
  183
  189
  195
  202
  210
  218
  226
  235
  245
  256
  267
  278
  291
  304
  317
  332
  347
  364
  381
  399
  418
  438
  459
  481
  504
  529
Total equity, $m
  65
  66
  68
  70
  72
  74
  77
  80
  83
  86
  89
  93
  97
  101
  105
  110
  115
  120
  125
  131
  137
  144
  150
  157
  165
  173
  181
  190
  199
  209
Total liabilities and equity, $m
  229
  234
  241
  247
  255
  263
  272
  282
  293
  304
  315
  328
  342
  357
  372
  388
  406
  424
  442
  463
  484
  508
  531
  556
  583
  611
  640
  671
  703
  738
Debt-to-equity ratio
  1.810
  1.830
  1.850
  1.860
  1.880
  1.900
  1.920
  1.950
  1.970
  1.990
  2.010
  2.030
  2.050
  2.070
  2.090
  2.110
  2.120
  2.140
  2.160
  2.180
  2.190
  2.210
  2.220
  2.240
  2.250
  2.260
  2.270
  2.290
  2.300
  2.310
Adjusted equity ratio
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2
  2
  2
  2
  3
  3
  4
  5
  5
  6
  8
  9
  10
  12
  13
  15
  17
  19
  21
  23
  25
  28
  31
  34
  37
  40
  44
  48
  52
  56
Depreciation, amort., depletion, $m
  7
  7
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Funds from operations, $m
  9
  9
  10
  10
  11
  12
  12
  13
  15
  16
  17
  19
  20
  22
  24
  26
  29
  31
  34
  37
  40
  43
  46
  50
  54
  58
  63
  68
  73
  78
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
Cash from operations, $m
  8
  8
  9
  9
  10
  10
  11
  12
  13
  14
  15
  16
  18
  20
  22
  24
  26
  28
  31
  33
  36
  39
  42
  46
  50
  54
  58
  62
  67
  72
Maintenance CAPEX, $m
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
New CAPEX, $m
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
Cash from investing activities, $m
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -22
  -23
  -23
  -25
  -26
  -28
  -29
  -31
Free cash flow, $m
  0
  0
  0
  0
  0
  0
  1
  1
  2
  2
  3
  4
  4
  6
  7
  8
  9
  11
  13
  14
  16
  18
  21
  23
  26
  29
  32
  35
  38
  42
Issuance/(repayment) of debt, $m
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
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
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
Total cash flow (excl. dividends), $m
  4
  4
  4
  5
  6
  6
  7
  8
  9
  10
  11
  13
  14
  16
  18
  20
  22
  24
  26
  29
  32
  35
  38
  41
  45
  49
  53
  57
  62
  66
Retained Cash Flow (-), $m
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
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
  2
  3
  3
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  12
  13
  15
  17
  19
  21
  23
  26
  28
  31
  34
  37
  41
  44
  48
  52
  57
Discount rate, %
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  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
  100.0
  100.0
  100.0
  100.0
  100.0

Information Services Group, Inc. is a technology insights, market intelligence and advisory services company. The Company operates in the segment of fact-based sourcing advisory services. It supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services with a focus on information technology, business process transformation, program management services and enterprise resource planning. It offers service lines, including research, consulting, managed services, network carrier services, robotic process automation (RPA), outsourcing advisory and provider services. It specializes in digital transformation services, including automation, cloud and data analytics; managed governance and risk services; network carrier services; technology strategy and operations design; change management, and technology research and analysis.

FINANCIAL RATIOS  of  Information Services Group, Inc. (III)

Valuation Ratios
P/E Ratio -19.3
Price to Sales 0.6
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 12.3
Price to Free Cash Flow 15
Growth Rates
Sales Growth Rate 3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 203.5%
Total Debt to Equity 214%
Interest Coverage -2
Management Effectiveness
Return On Assets -2.5%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital -5.1%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity -13.6%
Return On Equity - 3 Yr. Avg. 4.1%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 38.7%
Gross Margin - 3 Yr. Avg. 40%
EBITDA Margin 2.3%
EBITDA Margin - 3 Yr. Avg. 6.5%
Operating Margin -0.9%
Oper. Margin - 3 Yr. Avg. 3.2%
Pre-Tax Margin -2.3%
Pre-Tax Margin - 3 Yr. Avg. 2.1%
Net Profit Margin -3.2%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate -20%
Eff/ Tax Rate - 3 Yr. Avg. 19.2%
Payout Ratio 0%

III stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the III stock intrinsic value calculation we used $270 million for the last fiscal year's total revenue generated by Information Services Group, Inc.. The default revenue input number comes from 0001 income statement of Information Services Group, 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 III 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 8.1%, whose default value for III is calculated based on our internal credit rating of Information Services Group, 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 Information Services Group, 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 III stock the variable cost ratio is equal to 77%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $53 million in the base year in the intrinsic value calculation for III 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 5.8% for Information Services Group, Inc..

Corporate tax rate of 27% is the nominal tax rate for Information Services Group, 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 III 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 III are equal to 23.4%.

Life of production assets of 9.5 years is the average useful life of capital assets used in Information Services Group, 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 III is equal to 13.9%. 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 - $63.537 million for Information Services Group, 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 45.186 million for Information Services Group, 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 Information Services Group, Inc. at the current share price and the inputted number of shares is $0.1 billion.

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