Intrinsic value of InnerWorkings - INWK

Previous Close

$11.46

  Intrinsic Value

$25.39

stock screener

  Rating & Target

str. buy

+122%

  Value-price divergence*

+201%

Previous close

$11.46

 
Intrinsic value

$25.39

 
Up/down potential

+122%

 
Rating

str. buy

 
Value-price divergence*

+201%

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

We calculate the intrinsic value of INWK 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 0.6

 

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, %
  6.03
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
Revenue, $m
  1,091
  1,136
  1,183
  1,234
  1,287
  1,344
  1,404
  1,468
  1,535
  1,606
  1,680
  1,759
  1,842
  1,929
  2,022
  2,118
  2,220
  2,328
  2,441
  2,559
  2,684
  2,816
  2,954
  3,099
  3,251
  3,411
  3,580
  3,757
  3,942
  4,138
  4,343
Variable operating expenses, $m
 
  530
  551
  574
  598
  623
  650
  678
  709
  740
  774
  789
  826
  865
  906
  950
  996
  1,044
  1,094
  1,148
  1,204
  1,262
  1,324
  1,389
  1,458
  1,530
  1,605
  1,684
  1,768
  1,855
  1,947
Fixed operating expenses, $m
 
  589
  604
  619
  635
  651
  667
  683
  701
  718
  736
  754
  773
  793
  812
  833
  854
  875
  897
  919
  942
  966
  990
  1,015
  1,040
  1,066
  1,093
  1,120
  1,148
  1,177
  1,206
Total operating expenses, $m
  1,071
  1,119
  1,155
  1,193
  1,233
  1,274
  1,317
  1,361
  1,410
  1,458
  1,510
  1,543
  1,599
  1,658
  1,718
  1,783
  1,850
  1,919
  1,991
  2,067
  2,146
  2,228
  2,314
  2,404
  2,498
  2,596
  2,698
  2,804
  2,916
  3,032
  3,153
Operating income, $m
  20
  17
  28
  41
  55
  71
  87
  106
  126
  147
  171
  216
  243
  272
  303
  336
  371
  409
  449
  493
  538
  587
  639
  695
  753
  816
  882
  952
  1,027
  1,106
  1,189
EBITDA, $m
  38
  41
  53
  65
  80
  95
  112
  131
  151
  173
  196
  222
  249
  278
  309
  343
  379
  417
  458
  501
  547
  597
  649
  705
  764
  827
  894
  965
  1,040
  1,119
  1,204
Interest expense (income), $m
  4
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
  40
Earnings before tax, $m
  15
  13
  24
  36
  49
  64
  80
  98
  117
  138
  160
  205
  231
  259
  289
  321
  355
  392
  431
  473
  517
  565
  615
  669
  726
  786
  851
  919
  991
  1,068
  1,150
Tax expense, $m
  11
  3
  6
  10
  13
  17
  22
  26
  32
  37
  43
  55
  62
  70
  78
  87
  96
  106
  116
  128
  140
  152
  166
  181
  196
  212
  230
  248
  268
  288
  310
Net income, $m
  4
  9
  17
  26
  36
  47
  59
  72
  86
  101
  117
  150
  169
  189
  211
  234
  259
  286
  315
  345
  378
  412
  449
  488
  530
  574
  621
  671
  724
  780
  839

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  31
  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
  591
  583
  607
  633
  661
  690
  721
  753
  788
  824
  863
  903
  946
  991
  1,038
  1,088
  1,140
  1,195
  1,253
  1,314
  1,378
  1,445
  1,516
  1,591
  1,669
  1,751
  1,838
  1,928
  2,024
  2,124
  2,229
Adjusted assets (=assets-cash), $m
  560
  583
  607
  633
  661
  690
  721
  753
  788
  824
  863
  903
  946
  991
  1,038
  1,088
  1,140
  1,195
  1,253
  1,314
  1,378
  1,445
  1,516
  1,591
  1,669
  1,751
  1,838
  1,928
  2,024
  2,124
  2,229
Revenue / Adjusted assets
  1.948
  1.949
  1.949
  1.949
  1.947
  1.948
  1.947
  1.950
  1.948
  1.949
  1.947
  1.948
  1.947
  1.947
  1.948
  1.947
  1.947
  1.948
  1.948
  1.947
  1.948
  1.949
  1.949
  1.948
  1.948
  1.948
  1.948
  1.949
  1.948
  1.948
  1.948
Average production assets, $m
  52
  53
  56
  58
  61
  63
  66
  69
  72
  75
  79
  83
  87
  91
  95
  100
  104
  109
  115
  120
  126
  132
  139
  146
  153
  160
  168
  177
  185
  194
  204
Working capital, $m
  116
  89
  92
  96
  100
  105
  110
  114
  120
  125
  131
  137
  144
  151
  158
  165
  173
  182
  190
  200
  209
  220
  230
  242
  254
  266
  279
  293
  308
  323
  339
Total debt, $m
  107
  120
  135
  150
  166
  183
  201
  220
  240
  261
  283
  307
  331
  357
  385
  414
  444
  476
  510
  546
  583
  622
  663
  707
  752
  800
  850
  903
  959
  1,017
  1,078
Total liabilities, $m
  326
  339
  354
  369
  385
  402
  420
  439
  459
  480
  502
  526
  550
  576
  604
  633
  663
  695
  729
  765
  802
  841
  882
  926
  971
  1,019
  1,069
  1,122
  1,178
  1,236
  1,297
Total equity, $m
  265
  244
  254
  265
  276
  288
  301
  315
  329
  345
  361
  377
  395
  414
  434
  455
  476
  499
  524
  549
  576
  604
  634
  665
  698
  732
  768
  806
  846
  888
  932
Total liabilities and equity, $m
  591
  583
  608
  634
  661
  690
  721
  754
  788
  825
  863
  903
  945
  990
  1,038
  1,088
  1,139
  1,194
  1,253
  1,314
  1,378
  1,445
  1,516
  1,591
  1,669
  1,751
  1,837
  1,928
  2,024
  2,124
  2,229
Debt-to-equity ratio
  0.404
  0.490
  0.530
  0.570
  0.600
  0.630
  0.670
  0.700
  0.730
  0.760
  0.780
  0.810
  0.840
  0.860
  0.890
  0.910
  0.930
  0.950
  0.970
  0.990
  1.010
  1.030
  1.050
  1.060
  1.080
  1.090
  1.110
  1.120
  1.130
  1.150
  1.160
Adjusted equity ratio
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  9
  17
  26
  36
  47
  59
  72
  86
  101
  117
  150
  169
  189
  211
  234
  259
  286
  315
  345
  378
  412
  449
  488
  530
  574
  621
  671
  724
  780
  839
Depreciation, amort., depletion, $m
  18
  24
  24
  24
  25
  25
  25
  25
  25
  26
  26
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
Funds from operations, $m
  -19
  33
  41
  51
  61
  72
  84
  97
  111
  126
  143
  155
  175
  195
  217
  241
  267
  294
  323
  354
  386
  421
  459
  498
  541
  585
  633
  683
  737
  794
  854
Change in working capital, $m
  -30
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
Cash from operations, $m
  11
  30
  38
  47
  56
  67
  79
  92
  106
  121
  137
  149
  168
  188
  210
  234
  259
  285
  314
  344
  377
  411
  448
  487
  529
  573
  620
  670
  722
  778
  838
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
New CAPEX, $m
  -13
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Cash from investing activities, $m
  -13
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -10
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -17
  -17
  -19
  -19
  -20
  -21
  -22
  -24
Free cash flow, $m
  -2
  24
  32
  40
  50
  60
  72
  84
  98
  112
  128
  140
  158
  178
  200
  222
  247
  273
  301
  331
  362
  396
  432
  470
  511
  555
  601
  649
  701
  756
  814
Issuance/(repayment) of debt, $m
  9
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  30
  32
  34
  35
  37
  39
  41
  43
  46
  48
  50
  53
  56
  58
  61
Issuance/(repurchase) of shares, $m
  3
  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  
  4
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  30
  32
  34
  35
  37
  39
  41
  43
  46
  48
  50
  53
  56
  58
  61
Total cash flow (excl. dividends), $m
  0
  38
  46
  55
  66
  77
  90
  103
  118
  134
  151
  163
  183
  204
  227
  251
  277
  305
  335
  366
  400
  435
  473
  514
  557
  602
  651
  702
  757
  814
  876
Retained Cash Flow (-), $m
  -11
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
Prev. year cash balance distribution, $m
 
  31
  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
 
  59
  36
  45
  54
  65
  77
  89
  103
  118
  135
  147
  165
  186
  207
  231
  255
  282
  310
  341
  373
  407
  444
  483
  524
  568
  615
  664
  717
  773
  832
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
 
  57
  33
  39
  45
  50
  55
  60
  64
  67
  70
  68
  69
  69
  68
  66
  63
  59
  55
  50
  45
  40
  35
  30
  25
  21
  17
  13
  10
  8
  6
Current shareholders' claim on cash, %
  100
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9

InnerWorkings, Inc. is a marketing execution company. The Company's software applications and databases create an integrated solution that stores, analyzes and tracks the production capabilities of its supplier network, as well as detailed pricing data. The Company's segments include North America and International. The North America segment includes operations in the United States and Canada. The International segment includes operations in Mexico, South America, Central America, Europe, the Middle East, Africa and Asia. The Company procures products for clients across a range of industries, such as retail, financial services, hospitality, consumer packaged goods, non-profits, healthcare, pharmaceuticals, food and beverage, broadcasting and cable and transportation. The Company's clients are classified into over two categories, enterprise and transactional. The Company provides marketing materials to its transactional clients on an order-by-order basis.

FINANCIAL RATIOS  of  InnerWorkings (INWK)

Valuation Ratios
P/E Ratio 155
Price to Sales 0.6
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 56.4
Price to Free Cash Flow -309.9
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.3%
Cap. Spend. - 3 Yr. Gr. Rate 1.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 40.4%
Total Debt to Equity 40.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 0.8%
Ret/ On Assets - 3 Yr. Avg. 1.4%
Return On Total Capital 1.1%
Ret/ On T. Cap. - 3 Yr. Avg. 1.6%
Return On Equity 1.5%
Return On Equity - 3 Yr. Avg. 1.9%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 24.2%
Gross Margin - 3 Yr. Avg. 23.5%
EBITDA Margin 3.4%
EBITDA Margin - 3 Yr. Avg. 3.4%
Operating Margin 1.8%
Oper. Margin - 3 Yr. Avg. 1.9%
Pre-Tax Margin 1.4%
Pre-Tax Margin - 3 Yr. Avg. 1.3%
Net Profit Margin 0.4%
Net Profit Margin - 3 Yr. Avg. 0.5%
Effective Tax Rate 73.3%
Eff/ Tax Rate - 3 Yr. Avg. 6.8%
Payout Ratio 0%

INWK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the INWK stock intrinsic value calculation we used $1091 million for the last fiscal year's total revenue generated by InnerWorkings. The default revenue input number comes from 2016 income statement of InnerWorkings. 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 INWK stock valuation model: a) initial revenue growth rate of 4.1% 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 4.4%, whose default value for INWK is calculated based on our internal credit rating of InnerWorkings, 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 InnerWorkings.
    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 INWK stock the variable cost ratio is equal to 46.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $575 million in the base year in the intrinsic value calculation for INWK 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 3.9% for InnerWorkings.

Corporate tax rate of 27% is the nominal tax rate for InnerWorkings. 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 INWK 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 INWK are equal to 4.7%.

Life of production assets of 14.2 years is the average useful life of capital assets used in InnerWorkings 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 INWK is equal to 7.8%. 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 - $265 million for InnerWorkings - 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 53.816 million for InnerWorkings 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 InnerWorkings at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ InnerWorkings beats 2Q profit forecasts   [Aug-07-17 11:14PM  Associated Press]
▶ InnerWorkings beats 2Q profit forecasts   [06:10PM  Associated Press]
▶ InnerWorkings to Present at Upcoming Investor Conferences   [May-31-17 04:30PM  Business Wire]
▶ ETFs with exposure to InnerWorkings, Inc. : May 12, 2017   [May-12-17 04:03PM  Capital Cube]
▶ InnerWorkings meets 1Q profit forecasts   [May-08-17 05:50PM  Associated Press]
▶ InnerWorkings tops Street 4Q forecasts   [07:37PM  Associated Press]
▶ InnerWorkings Expands Partnership with McKesson   [Dec-21-16 09:13AM  Business Wire]
▶ Is Strayer Education Inc (STRA) Going to Burn These Hedge Funds?   [Dec-12-16 09:26AM  at Insider Monkey]
Financial statements of INWK
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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