Intrinsic value of Inovalon Holdings Cl A - INOV

Previous Close

$16.90

  Intrinsic Value

$12.68

stock screener

  Rating & Target

sell

-25%

Previous close

$16.90

 
Intrinsic value

$12.68

 
Up/down potential

-25%

 
Rating

sell

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

We calculate the intrinsic value of INOV 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 2.5

 

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, %
  -2.06
  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
  428
  437
  447
  458
  471
  485
  501
  518
  536
  556
  578
  601
  625
  651
  678
  708
  739
  772
  806
  843
  882
  923
  966
  1,011
  1,059
  1,109
  1,162
  1,218
  1,277
  1,339
  1,404
Variable operating expenses, $m
 
  320
  327
  335
  344
  354
  365
  376
  389
  403
  418
  415
  432
  450
  469
  489
  510
  533
  557
  582
  609
  637
  667
  698
  731
  766
  803
  842
  882
  925
  970
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
  390
  320
  327
  335
  344
  354
  365
  376
  389
  403
  418
  415
  432
  450
  469
  489
  510
  533
  557
  582
  609
  637
  667
  698
  731
  766
  803
  842
  882
  925
  970
Operating income, $m
  38
  116
  120
  123
  127
  132
  136
  142
  147
  154
  160
  186
  193
  201
  210
  219
  228
  239
  249
  261
  273
  285
  299
  313
  327
  343
  359
  377
  395
  414
  434
EBITDA, $m
  75
  153
  157
  161
  166
  171
  176
  182
  189
  196
  203
  211
  220
  229
  239
  249
  260
  271
  283
  296
  310
  324
  339
  355
  372
  390
  409
  428
  449
  471
  494
Interest expense (income), $m
  5
  8
  9
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
Earnings before tax, $m
  39
  108
  111
  114
  118
  122
  127
  131
  137
  142
  148
  173
  180
  188
  195
  204
  212
  222
  232
  242
  253
  264
  277
  289
  303
  317
  332
  348
  365
  382
  401
Tax expense, $m
  12
  29
  30
  31
  32
  33
  34
  35
  37
  38
  40
  47
  49
  51
  53
  55
  57
  60
  63
  65
  68
  71
  75
  78
  82
  86
  90
  94
  98
  103
  108
Net income, $m
  27
  79
  81
  83
  86
  89
  92
  96
  100
  104
  108
  126
  132
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  211
  221
  232
  243
  254
  266
  279
  292

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  573
  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
  1,053
  489
  501
  514
  528
  544
  562
  581
  601
  624
  648
  673
  701
  730
  761
  793
  828
  865
  904
  945
  988
  1,034
  1,083
  1,133
  1,187
  1,244
  1,303
  1,366
  1,432
  1,501
  1,574
Adjusted assets (=assets-cash), $m
  480
  489
  501
  514
  528
  544
  562
  581
  601
  624
  648
  673
  701
  730
  761
  793
  828
  865
  904
  945
  988
  1,034
  1,083
  1,133
  1,187
  1,244
  1,303
  1,366
  1,432
  1,501
  1,574
Revenue / Adjusted assets
  0.892
  0.894
  0.892
  0.891
  0.892
  0.892
  0.891
  0.892
  0.892
  0.891
  0.892
  0.893
  0.892
  0.892
  0.891
  0.893
  0.893
  0.892
  0.892
  0.892
  0.893
  0.893
  0.892
  0.892
  0.892
  0.891
  0.892
  0.892
  0.892
  0.892
  0.892
Average production assets, $m
  154
  157
  161
  165
  170
  175
  180
  186
  193
  200
  208
  216
  225
  234
  244
  255
  266
  278
  290
  303
  317
  332
  348
  364
  381
  399
  418
  439
  460
  482
  505
Working capital, $m
  602
  60
  62
  63
  65
  67
  69
  71
  74
  77
  80
  83
  86
  90
  94
  98
  102
  106
  111
  116
  122
  127
  133
  140
  146
  153
  160
  168
  176
  185
  194
Total debt, $m
  267
  244
  251
  261
  271
  282
  294
  308
  323
  338
  355
  373
  393
  413
  435
  458
  483
  509
  536
  565
  596
  628
  662
  698
  736
  776
  818
  862
  909
  958
  1,009
Total liabilities, $m
  370
  346
  353
  363
  373
  384
  396
  410
  425
  440
  457
  475
  495
  515
  537
  560
  585
  611
  638
  667
  698
  730
  764
  800
  838
  878
  920
  964
  1,011
  1,060
  1,111
Total equity, $m
  684
  144
  147
  151
  155
  160
  165
  171
  177
  183
  190
  198
  206
  215
  224
  233
  243
  254
  266
  278
  291
  304
  318
  333
  349
  366
  383
  402
  421
  441
  463
Total liabilities and equity, $m
  1,054
  490
  500
  514
  528
  544
  561
  581
  602
  623
  647
  673
  701
  730
  761
  793
  828
  865
  904
  945
  989
  1,034
  1,082
  1,133
  1,187
  1,244
  1,303
  1,366
  1,432
  1,501
  1,574
Debt-to-equity ratio
  0.390
  1.690
  1.710
  1.730
  1.740
  1.760
  1.780
  1.800
  1.820
  1.850
  1.870
  1.890
  1.910
  1.930
  1.950
  1.960
  1.980
  2.000
  2.020
  2.030
  2.050
  2.070
  2.080
  2.100
  2.110
  2.120
  2.140
  2.150
  2.160
  2.170
  2.180
Adjusted equity ratio
  0.231
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294
  0.294

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  27
  79
  81
  83
  86
  89
  92
  96
  100
  104
  108
  126
  132
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  211
  221
  232
  243
  254
  266
  279
  292
Depreciation, amort., depletion, $m
  37
  37
  37
  38
  38
  39
  40
  40
  41
  42
  43
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
Funds from operations, $m
  110
  116
  119
  121
  125
  128
  132
  136
  141
  146
  151
  152
  158
  164
  171
  179
  186
  195
  203
  212
  222
  232
  243
  254
  266
  279
  292
  306
  320
  336
  352
Change in working capital, $m
  17
  1
  1
  2
  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
Cash from operations, $m
  93
  115
  117
  120
  123
  126
  130
  134
  138
  143
  148
  149
  155
  161
  168
  175
  182
  190
  198
  207
  217
  226
  237
  248
  259
  272
  284
  298
  312
  327
  343
Maintenance CAPEX, $m
  0
  -18
  -18
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
New CAPEX, $m
  -39
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Cash from investing activities, $m
  40
  -21
  -22
  -23
  -24
  -25
  -27
  -27
  -29
  -30
  -32
  -32
  -34
  -35
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
Free cash flow, $m
  133
  94
  95
  97
  99
  101
  104
  107
  110
  113
  117
  116
  120
  125
  130
  135
  141
  147
  153
  160
  167
  174
  182
  191
  199
  209
  218
  229
  239
  251
  263
Issuance/(repayment) of debt, $m
  -15
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  51
Issuance/(repurchase) of shares, $m
  -100
  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  
  -119
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  51
Total cash flow (excl. dividends), $m
  14
  100
  103
  106
  109
  112
  116
  120
  124
  129
  134
  134
  140
  146
  152
  158
  165
  173
  181
  189
  198
  207
  216
  227
  237
  249
  260
  273
  286
  300
  314
Retained Cash Flow (-), $m
  55
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
Prev. year cash balance distribution, $m
 
  543
  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
 
  640
  100
  102
  105
  108
  111
  115
  118
  122
  127
  127
  132
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  212
  221
  232
  243
  254
  267
  279
  293
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
 
  614
  91
  89
  86
  83
  81
  77
  74
  70
  67
  60
  56
  52
  48
  44
  39
  35
  31
  27
  23
  20
  17
  14
  11
  9
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Inovalon Holdings, Inc. (Inovalon) is a technology company. The Company provides cloud-based platforms empowering a data-driven transformation from volume-based to value-based models to the healthcare industry. Leveraging large-scale data interconnectivity capabilities, unparalleled proprietary data sets, advanced analytics, data-driven intervention systems, and subject matter expertise, Inovalon enables the assessment and improvement of clinical and quality outcomes and financial performance across the healthcare ecosystem. The Company serves clients across the healthcare industry, which includes health plans and provider organizations, pharmaceutical, medical device, and diagnostics companies. It provides technology that supports approximately 500 healthcare organizations. Inovalon's platforms are informed by data pertaining to more than 858,000 physicians, 377,000 clinical facilities, and more than 230 million Americans.

FINANCIAL RATIOS  of  Inovalon Holdings Cl A (INOV)

Valuation Ratios
P/E Ratio 92.7
Price to Sales 5.8
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 26.9
Price to Free Cash Flow 46.3
Growth Rates
Sales Growth Rate -2.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 15.5%
Financial Strength
Quick Ratio 19
Current Ratio 0
LT Debt to Equity 34.6%
Total Debt to Equity 39%
Interest Coverage 9
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 11.1%
Return On Total Capital 2.7%
Ret/ On T. Cap. - 3 Yr. Avg. 12.5%
Return On Equity 3.8%
Return On Equity - 3 Yr. Avg. 26.6%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 62.6%
Gross Margin - 3 Yr. Avg. 66%
EBITDA Margin 18.9%
EBITDA Margin - 3 Yr. Avg. 28.9%
Operating Margin 8.9%
Oper. Margin - 3 Yr. Avg. 22%
Pre-Tax Margin 9.1%
Pre-Tax Margin - 3 Yr. Avg. 21.8%
Net Profit Margin 6.3%
Net Profit Margin - 3 Yr. Avg. 13.1%
Effective Tax Rate 30.8%
Eff/ Tax Rate - 3 Yr. Avg. 37.9%
Payout Ratio 0%

INOV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the INOV stock intrinsic value calculation we used $428 million for the last fiscal year's total revenue generated by Inovalon Holdings Cl A. The default revenue input number comes from 2016 income statement of Inovalon Holdings Cl A. 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 INOV 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 INOV is calculated based on our internal credit rating of Inovalon Holdings Cl A, 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 Inovalon Holdings Cl A.
    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 INOV stock the variable cost ratio is equal to 73.4%.

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 INOV 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 Inovalon Holdings Cl A.

Corporate tax rate of 27% is the nominal tax rate for Inovalon Holdings Cl A. 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 INOV 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 INOV are equal to 36%.

Life of production assets of 8.5 years is the average useful life of capital assets used in Inovalon Holdings Cl A 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 INOV is equal to 13.8%. 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 - $684 million for Inovalon Holdings Cl A - 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 145.562 million for Inovalon Holdings Cl A 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 Inovalon Holdings Cl A at the current share price and the inputted number of shares is $2.5 billion.

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COMPANY NEWS

▶ What Happened in the Stock Market Today   [Sep-12-17 05:00PM  Motley Fool]
▶ Why Shares of Inovalon Are Soaring Today   [12:58PM  Motley Fool]
▶ Inovalon Holdings beats Street 2Q forecasts   [01:49AM  Associated Press]
▶ Inovalon Reports Second Quarter 2017 Results   [Aug-02-17 04:10PM  GlobeNewswire]
▶ National Health Plans Select Inovalons Integrated Platform   [Jul-17-17 07:55AM  GlobeNewswire]
▶ Bowie health tech firm Inovalon to lay off 113 employees   [Jun-13-17 01:30PM  American City Business Journals]
▶ Data Diagnostics Wins 2017 MedTech Breakthrough Award   [Jun-08-17 09:00AM  PR Newswire]
▶ Inovalon Holdings beats Street 1Q forecasts   [May-04-17 05:03AM  Associated Press]
▶ Inovalon Reports First Quarter 2017 Results   [May-03-17 04:10PM  GlobeNewswire]
▶ Inovalon Holdings beats Street 4Q forecasts   [Feb-22-17 05:46PM  Associated Press]
▶ Inovalon Extends Partnership With Anthem   [Jan-09-17 07:55AM  GlobeNewswire]
▶ Inovalon Announces Charitable Giving for 2016   [Jan-05-17 07:55AM  GlobeNewswire]
▶ Dow, S&P 500, Nasdaq trade at all-time highs   [10:59AM  at MarketWatch]
▶ Stocks to Watch: Achaogen, Inovalon, Valeant   [09:36AM  at The Wall Street Journal]
▶ Inovalon Announces 2016 Investor Day   [Dec-06-16 07:55AM  GlobeNewswire]
Financial statements of INOV
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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