Intrinsic value of Inovalon Holdings Cl A - INOV

Previous Close

$13.65

  Intrinsic Value

$17.88

stock screener

  Rating & Target

buy

+31%

Previous close

$13.65

 
Intrinsic value

$17.88

 
Up/down potential

+31%

 
Rating

buy

*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

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, %
  -2.06
  10.50
  9.95
  9.45
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.36
  5.32
  5.29
  5.26
Revenue, $m
  428
  473
  520
  569
  620
  674
  729
  787
  847
  910
  975
  1,042
  1,112
  1,185
  1,261
  1,340
  1,422
  1,507
  1,597
  1,690
  1,787
  1,888
  1,994
  2,104
  2,220
  2,340
  2,467
  2,599
  2,737
  2,882
  3,033
Variable operating expenses, $m
 
  345
  378
  412
  447
  484
  522
  562
  604
  647
  692
  720
  768
  819
  871
  925
  982
  1,041
  1,103
  1,167
  1,234
  1,304
  1,377
  1,454
  1,533
  1,617
  1,704
  1,795
  1,891
  1,991
  2,095
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
  345
  378
  412
  447
  484
  522
  562
  604
  647
  692
  720
  768
  819
  871
  925
  982
  1,041
  1,103
  1,167
  1,234
  1,304
  1,377
  1,454
  1,533
  1,617
  1,704
  1,795
  1,891
  1,991
  2,095
Operating income, $m
  38
  128
  142
  157
  173
  190
  207
  225
  244
  263
  283
  322
  344
  366
  390
  414
  440
  466
  494
  522
  552
  584
  617
  651
  686
  724
  763
  804
  846
  891
  938
EBITDA, $m
  75
  166
  183
  200
  218
  237
  256
  277
  298
  320
  343
  366
  391
  417
  443
  471
  500
  530
  561
  594
  628
  664
  701
  740
  780
  823
  867
  914
  962
  1,013
  1,066
Interest expense (income), $m
  5
  8
  10
  11
  12
  14
  15
  17
  18
  20
  22
  23
  25
  27
  29
  31
  34
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
Earnings before tax, $m
  39
  119
  133
  147
  161
  176
  192
  208
  225
  243
  261
  299
  319
  339
  361
  383
  406
  430
  456
  482
  509
  538
  568
  599
  632
  666
  701
  739
  778
  819
  862
Tax expense, $m
  12
  32
  36
  40
  44
  48
  52
  56
  61
  66
  71
  81
  86
  92
  97
  103
  110
  116
  123
  130
  137
  145
  153
  162
  171
  180
  189
  199
  210
  221
  233
Net income, $m
  27
  87
  97
  107
  118
  129
  140
  152
  164
  177
  191
  218
  233
  248
  263
  280
  296
  314
  333
  352
  372
  393
  414
  437
  461
  486
  512
  539
  568
  598
  629

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
  530
  583
  638
  696
  755
  818
  883
  950
  1,020
  1,093
  1,168
  1,247
  1,328
  1,413
  1,502
  1,594
  1,690
  1,790
  1,894
  2,003
  2,117
  2,235
  2,359
  2,488
  2,624
  2,765
  2,913
  3,068
  3,231
  3,401
Adjusted assets (=assets-cash), $m
  480
  530
  583
  638
  696
  755
  818
  883
  950
  1,020
  1,093
  1,168
  1,247
  1,328
  1,413
  1,502
  1,594
  1,690
  1,790
  1,894
  2,003
  2,117
  2,235
  2,359
  2,488
  2,624
  2,765
  2,913
  3,068
  3,231
  3,401
Revenue / Adjusted assets
  0.892
  0.892
  0.892
  0.892
  0.891
  0.893
  0.891
  0.891
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
  0.892
Average production assets, $m
  154
  170
  187
  205
  223
  243
  263
  283
  305
  327
  351
  375
  400
  427
  454
  482
  512
  543
  575
  608
  643
  680
  718
  758
  799
  843
  888
  936
  985
  1,037
  1,092
Working capital, $m
  602
  65
  72
  79
  86
  93
  101
  109
  117
  126
  134
  144
  153
  164
  174
  185
  196
  208
  220
  233
  247
  261
  275
  290
  306
  323
  340
  359
  378
  398
  419
Total debt, $m
  267
  272
  310
  348
  389
  431
  475
  521
  569
  618
  669
  723
  778
  836
  896
  958
  1,023
  1,091
  1,162
  1,235
  1,312
  1,392
  1,476
  1,563
  1,655
  1,750
  1,850
  1,955
  2,064
  2,179
  2,299
Total liabilities, $m
  370
  374
  412
  450
  491
  533
  577
  623
  671
  720
  771
  825
  880
  938
  998
  1,060
  1,125
  1,193
  1,264
  1,337
  1,414
  1,494
  1,578
  1,665
  1,757
  1,852
  1,952
  2,057
  2,166
  2,281
  2,401
Total equity, $m
  684
  156
  171
  188
  204
  222
  240
  259
  279
  300
  321
  343
  367
  391
  416
  442
  469
  497
  526
  557
  589
  622
  657
  694
  732
  771
  813
  857
  902
  950
  1,000
Total liabilities and equity, $m
  1,054
  530
  583
  638
  695
  755
  817
  882
  950
  1,020
  1,092
  1,168
  1,247
  1,329
  1,414
  1,502
  1,594
  1,690
  1,790
  1,894
  2,003
  2,116
  2,235
  2,359
  2,489
  2,623
  2,765
  2,914
  3,068
  3,231
  3,401
Debt-to-equity ratio
  0.390
  1.750
  1.810
  1.860
  1.900
  1.940
  1.980
  2.010
  2.040
  2.060
  2.080
  2.100
  2.120
  2.140
  2.160
  2.170
  2.180
  2.200
  2.210
  2.220
  2.230
  2.240
  2.250
  2.250
  2.260
  2.270
  2.280
  2.280
  2.290
  2.290
  2.300
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
  87
  97
  107
  118
  129
  140
  152
  164
  177
  191
  218
  233
  248
  263
  280
  296
  314
  333
  352
  372
  393
  414
  437
  461
  486
  512
  539
  568
  598
  629
Depreciation, amort., depletion, $m
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  80
  84
  89
  94
  99
  104
  110
  116
  122
  128
Funds from operations, $m
  110
  126
  137
  150
  162
  176
  190
  204
  219
  234
  250
  262
  280
  298
  317
  336
  357
  378
  400
  423
  447
  473
  499
  526
  555
  585
  617
  649
  684
  720
  758
Change in working capital, $m
  17
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
Cash from operations, $m
  93
  120
  131
  143
  155
  168
  182
  196
  211
  226
  242
  253
  270
  288
  306
  325
  345
  366
  388
  410
  434
  459
  484
  511
  539
  568
  599
  631
  665
  700
  737
Maintenance CAPEX, $m
  0
  -18
  -20
  -22
  -24
  -26
  -29
  -31
  -33
  -36
  -39
  -41
  -44
  -47
  -50
  -53
  -57
  -60
  -64
  -68
  -72
  -76
  -80
  -84
  -89
  -94
  -99
  -104
  -110
  -116
  -122
New CAPEX, $m
  -39
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -43
  -45
  -48
  -50
  -52
  -55
Cash from investing activities, $m
  40
  -34
  -37
  -40
  -42
  -45
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -73
  -77
  -81
  -87
  -91
  -96
  -101
  -107
  -112
  -118
  -124
  -131
  -137
  -144
  -152
  -160
  -168
  -177
Free cash flow, $m
  133
  85
  94
  103
  113
  123
  133
  144
  156
  167
  180
  187
  201
  214
  229
  244
  259
  275
  292
  309
  328
  347
  366
  387
  408
  431
  455
  479
  505
  532
  560
Issuance/(repayment) of debt, $m
  -15
  35
  37
  39
  41
  42
  44
  46
  48
  49
  51
  53
  55
  58
  60
  62
  65
  68
  71
  74
  77
  80
  84
  87
  91
  96
  100
  105
  109
  115
  120
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
  35
  37
  39
  41
  42
  44
  46
  48
  49
  51
  53
  55
  58
  60
  62
  65
  68
  71
  74
  77
  80
  84
  87
  91
  96
  100
  105
  109
  115
  120
Total cash flow (excl. dividends), $m
  14
  120
  131
  142
  153
  165
  177
  190
  203
  217
  231
  241
  256
  272
  289
  306
  324
  343
  362
  383
  404
  427
  450
  474
  500
  527
  554
  584
  614
  646
  680
Retained Cash Flow (-), $m
  55
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
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
 
  649
  116
  126
  136
  147
  159
  171
  183
  196
  210
  219
  233
  248
  264
  280
  297
  315
  333
  352
  372
  393
  415
  438
  462
  487
  513
  540
  569
  599
  630
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
 
  622
  106
  110
  112
  114
  115
  115
  115
  113
  110
  104
  99
  94
  89
  82
  75
  68
  61
  54
  47
  41
  34
  29
  24
  19
  15
  12
  9
  7
  5
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
  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

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 74.9
Price to Sales 4.7
Price to Book 3
Price to Tangible Book
Price to Cash Flow 21.7
Price to Free Cash Flow 37.4
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 10.5% 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 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 146 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 $2.0 billion.

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COMPANY NEWS

▶ Inovalon Announces Charitable Giving for 2017   [Jan-03-18 07:55AM  GlobeNewswire]
▶ Inovalon Holdings tops Street 3Q forecasts   [05:49AM  Associated Press]
▶ Inovalon Reports Third Quarter 2017 Results   [Nov-01-17 04:10PM  GlobeNewswire]
▶ 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]
Financial statements of INOV
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