Intrinsic value of Insteel Industries, Inc. - IIIN

Previous Close

$19.31

  Intrinsic Value

$22.67

stock screener

  Rating & Target

hold

+17%

Previous close

$19.31

 
Intrinsic value

$22.67

 
Up/down potential

+17%

 
Rating

hold

We calculate the intrinsic value of IIIN 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 0.4

 

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, %
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
Revenue, $m
  482
  513
  545
  578
  613
  649
  686
  726
  767
  809
  854
  901
  950
  1,001
  1,054
  1,110
  1,169
  1,230
  1,295
  1,362
  1,433
  1,506
  1,584
  1,665
  1,751
  1,840
  1,934
  2,032
  2,135
  2,244
Variable operating expenses, $m
  420
  446
  473
  501
  531
  561
  593
  626
  661
  698
  725
  765
  806
  849
  895
  942
  992
  1,044
  1,099
  1,156
  1,216
  1,278
  1,344
  1,413
  1,486
  1,561
  1,641
  1,725
  1,812
  1,904
Fixed operating expenses, $m
  16
  17
  17
  17
  18
  18
  19
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  26
  27
  28
  28
  29
  29
  30
  31
Total operating expenses, $m
  436
  463
  490
  518
  549
  579
  612
  645
  680
  718
  745
  786
  827
  871
  917
  965
  1,015
  1,068
  1,123
  1,181
  1,241
  1,304
  1,370
  1,440
  1,514
  1,589
  1,670
  1,754
  1,842
  1,935
Operating income, $m
  46
  50
  55
  59
  64
  69
  75
  80
  86
  92
  109
  116
  123
  130
  137
  145
  154
  163
  172
  181
  192
  202
  213
  225
  237
  250
  264
  278
  293
  309
EBITDA, $m
  69
  74
  80
  85
  91
  97
  103
  110
  117
  124
  131
  139
  147
  156
  165
  175
  184
  195
  206
  217
  229
  242
  255
  269
  283
  299
  315
  332
  349
  368
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
Earnings before tax, $m
  46
  50
  54
  59
  63
  68
  73
  78
  83
  89
  105
  111
  118
  125
  132
  139
  147
  155
  164
  173
  182
  192
  202
  213
  225
  237
  249
  263
  277
  291
Tax expense, $m
  12
  14
  15
  16
  17
  18
  20
  21
  22
  24
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  75
  79
Net income, $m
  34
  37
  40
  43
  46
  49
  53
  57
  61
  65
  77
  81
  86
  91
  96
  102
  107
  113
  119
  126
  133
  140
  148
  156
  164
  173
  182
  192
  202
  213

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
  351
  373
  396
  420
  446
  472
  499
  528
  558
  589
  621
  655
  691
  728
  767
  808
  850
  895
  942
  990
  1,042
  1,096
  1,152
  1,211
  1,273
  1,338
  1,406
  1,478
  1,553
  1,632
Adjusted assets (=assets-cash), $m
  351
  373
  396
  420
  446
  472
  499
  528
  558
  589
  621
  655
  691
  728
  767
  808
  850
  895
  942
  990
  1,042
  1,096
  1,152
  1,211
  1,273
  1,338
  1,406
  1,478
  1,553
  1,632
Revenue / Adjusted assets
  1.373
  1.375
  1.376
  1.376
  1.374
  1.375
  1.375
  1.375
  1.375
  1.374
  1.375
  1.376
  1.375
  1.375
  1.374
  1.374
  1.375
  1.374
  1.375
  1.376
  1.375
  1.374
  1.375
  1.375
  1.375
  1.375
  1.376
  1.375
  1.375
  1.375
Average production assets, $m
  118
  125
  133
  141
  150
  158
  167
  177
  187
  198
  208
  220
  232
  244
  257
  271
  285
  300
  316
  332
  350
  368
  387
  406
  427
  449
  472
  496
  521
  547
Working capital, $m
  85
  90
  96
  102
  108
  114
  121
  128
  135
  142
  150
  159
  167
  176
  186
  195
  206
  217
  228
  240
  252
  265
  279
  293
  308
  324
  340
  358
  376
  395
Total debt, $m
  6
  12
  18
  24
  31
  38
  45
  53
  61
  69
  78
  87
  97
  106
  117
  128
  139
  151
  164
  177
  190
  205
  220
  236
  252
  269
  288
  307
  327
  348
Total liabilities, $m
  94
  100
  106
  112
  119
  126
  133
  141
  149
  157
  166
  175
  184
  194
  205
  216
  227
  239
  251
  264
  278
  293
  308
  323
  340
  357
  376
  395
  415
  436
Total equity, $m
  257
  274
  291
  308
  327
  346
  366
  387
  409
  432
  455
  480
  506
  534
  562
  592
  623
  656
  690
  726
  764
  803
  844
  888
  933
  981
  1,031
  1,083
  1,138
  1,196
Total liabilities and equity, $m
  351
  374
  397
  420
  446
  472
  499
  528
  558
  589
  621
  655
  690
  728
  767
  808
  850
  895
  941
  990
  1,042
  1,096
  1,152
  1,211
  1,273
  1,338
  1,407
  1,478
  1,553
  1,632
Debt-to-equity ratio
  0.020
  0.040
  0.060
  0.080
  0.100
  0.110
  0.120
  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
  0.250
  0.260
  0.270
  0.270
  0.270
  0.280
  0.280
  0.290
  0.290
Adjusted equity ratio
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733
  0.733

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  34
  37
  40
  43
  46
  49
  53
  57
  61
  65
  77
  81
  86
  91
  96
  102
  107
  113
  119
  126
  133
  140
  148
  156
  164
  173
  182
  192
  202
  213
Depreciation, amort., depletion, $m
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
Funds from operations, $m
  57
  61
  64
  68
  73
  77
  82
  86
  91
  97
  99
  105
  111
  117
  124
  131
  138
  145
  153
  162
  171
  180
  189
  199
  210
  221
  233
  245
  258
  272
Change in working capital, $m
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
Cash from operations, $m
  52
  55
  59
  63
  67
  71
  75
  80
  84
  89
  91
  97
  102
  108
  114
  121
  128
  135
  142
  150
  158
  167
  176
  185
  195
  205
  216
  228
  240
  252
Maintenance CAPEX, $m
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
New CAPEX, $m
  -7
  -7
  -8
  -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
Cash from investing activities, $m
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -36
  -37
  -39
  -42
  -43
  -46
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -78
  -82
Free cash flow, $m
  33
  35
  38
  40
  43
  46
  49
  52
  55
  59
  59
  63
  67
  71
  75
  80
  84
  89
  94
  100
  105
  111
  117
  124
  130
  138
  145
  153
  161
  170
Issuance/(repayment) of debt, $m
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
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  
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
Total cash flow (excl. dividends), $m
  39
  41
  44
  47
  50
  53
  56
  60
  63
  67
  68
  72
  76
  81
  85
  90
  96
  101
  107
  113
  119
  125
  132
  139
  147
  155
  163
  172
  181
  191
Retained Cash Flow (-), $m
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -48
  -50
  -52
  -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
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  44
  47
  50
  54
  57
  61
  64
  68
  72
  77
  81
  86
  91
  96
  102
  107
  113
  120
  126
  133
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
  22
  23
  23
  24
  24
  24
  24
  24
  24
  23
  21
  20
  19
  18
  17
  15
  14
  13
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
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

Insteel Industries, Inc. is a manufacturer of steel wire reinforcing products for concrete construction applications. The Company's operations are focused on the manufacture and marketing of steel wire reinforcing products for concrete construction applications. Its concrete reinforcing products consist of two product lines: prestressed concrete strand (PC strand) and welded wire reinforcement (WWR). PC strand is a seven-wire strand that is used to impart compression forces into precast concrete elements and structures, providing reinforcement for bridges, parking decks, buildings and other concrete structures. WWR is produced as an engineered reinforcing product for use in nonresidential and residential construction. Its products are sold primarily to manufacturers of concrete products that are used in nonresidential construction. The Company sells its products nationwide across the United States, Canada, Mexico, and Central and South America.

FINANCIAL RATIOS  of  Insteel Industries, Inc. (IIIN)

Valuation Ratios
P/E Ratio 16
Price to Sales 0.9
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 18.4
Price to Free Cash Flow -367.7
Growth Rates
Sales Growth Rate -7.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 61.5%
Cap. Spend. - 3 Yr. Gr. Rate 18.5%
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 8%
Ret/ On Assets - 3 Yr. Avg. 10%
Return On Total Capital 10.3%
Ret/ On T. Cap. - 3 Yr. Avg. 13.1%
Return On Equity 10.3%
Return On Equity - 3 Yr. Avg. 13.1%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 15.4%
Gross Margin - 3 Yr. Avg. 16.2%
EBITDA Margin 11.8%
EBITDA Margin - 3 Yr. Avg. 12.7%
Operating Margin 8.7%
Oper. Margin - 3 Yr. Avg. 10%
Pre-Tax Margin 8.7%
Pre-Tax Margin - 3 Yr. Avg. 9.8%
Net Profit Margin 5.9%
Net Profit Margin - 3 Yr. Avg. 6.6%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 33.2%
Payout Ratio 113%

IIIN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IIIN stock intrinsic value calculation we used $453 million for the last fiscal year's total revenue generated by Insteel Industries, Inc.. The default revenue input number comes from 0001 income statement of Insteel Industries, 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 IIIN stock valuation model: a) initial revenue growth rate of 6.5% 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 IIIN is calculated based on our internal credit rating of Insteel Industries, 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 Insteel Industries, 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 IIIN stock the variable cost ratio is equal to 87.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $16 million in the base year in the intrinsic value calculation for IIIN 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 Insteel Industries, Inc..

Corporate tax rate of 27% is the nominal tax rate for Insteel Industries, 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 IIIN 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 IIIN are equal to 24.4%.

Life of production assets of 9.3 years is the average useful life of capital assets used in Insteel Industries, 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 IIIN is equal to 17.6%. 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 - $241.665 million for Insteel Industries, 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 19.223 million for Insteel Industries, 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 Insteel Industries, Inc. at the current share price and the inputted number of shares is $0.4 billion.

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