Intrinsic value of China Finance Online ADR - JRJC

Previous Close

$2.32

  Intrinsic Value

$10.43

stock screener

  Rating & Target

str. buy

+350%

  Value-price divergence*

+95%

Previous close

$2.32

 
Intrinsic value

$10.43

 
Up/down potential

+350%

 
Rating

str. buy

 
Value-price divergence*

+95%

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

We calculate the intrinsic value of JRJC 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 0.1

 

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, %
  -22.43
  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
  83
  85
  87
  89
  91
  94
  97
  100
  104
  108
  112
  116
  121
  126
  132
  137
  143
  150
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  248
  260
  272
Variable operating expenses, $m
 
  71
  73
  75
  77
  79
  82
  85
  88
  91
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  209
  219
  230
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
  111
  71
  73
  75
  77
  79
  82
  85
  88
  91
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  209
  219
  230
Operating income, $m
  -28
  13
  14
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
EBITDA, $m
  -26
  15
  15
  15
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
Earnings before tax, $m
  -7
  13
  14
  14
  14
  15
  15
  16
  16
  16
  17
  18
  18
  19
  19
  20
  21
  22
  23
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
Tax expense, $m
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
Net income, $m
  -2
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  83
  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
  168
  87
  89
  91
  94
  96
  100
  103
  107
  111
  115
  119
  124
  129
  135
  141
  147
  153
  160
  167
  175
  183
  192
  201
  210
  220
  231
  242
  254
  266
  279
Adjusted assets (=assets-cash), $m
  85
  87
  89
  91
  94
  96
  100
  103
  107
  111
  115
  119
  124
  129
  135
  141
  147
  153
  160
  167
  175
  183
  192
  201
  210
  220
  231
  242
  254
  266
  279
Revenue / Adjusted assets
  0.976
  0.977
  0.978
  0.978
  0.968
  0.979
  0.970
  0.971
  0.972
  0.973
  0.974
  0.975
  0.976
  0.977
  0.978
  0.972
  0.973
  0.980
  0.975
  0.976
  0.977
  0.978
  0.974
  0.975
  0.976
  0.977
  0.974
  0.975
  0.976
  0.977
  0.975
Average production assets, $m
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
Working capital, $m
  65
  -18
  -19
  -19
  -20
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
Total debt, $m
  0
  -4
  -2
  0
  2
  5
  8
  11
  14
  17
  21
  25
  30
  34
  39
  45
  50
  56
  62
  69
  76
  83
  91
  99
  107
  116
  126
  136
  146
  157
  169
Total liabilities, $m
  81
  78
  80
  82
  84
  87
  90
  93
  96
  99
  103
  107
  112
  116
  121
  127
  132
  138
  144
  151
  158
  165
  173
  181
  189
  198
  208
  218
  228
  239
  251
Total equity, $m
  86
  9
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
Total liabilities and equity, $m
  167
  87
  89
  91
  93
  97
  100
  103
  107
  110
  114
  119
  124
  129
  134
  141
  147
  153
  160
  168
  176
  183
  192
  201
  210
  220
  231
  242
  253
  266
  279
Debt-to-equity ratio
  0.000
  -0.450
  -0.240
  -0.010
  0.240
  0.500
  0.760
  1.030
  1.310
  1.580
  1.860
  2.130
  2.400
  2.660
  2.920
  3.170
  3.410
  3.650
  3.880
  4.100
  4.320
  4.530
  4.730
  4.920
  5.100
  5.280
  5.450
  5.610
  5.770
  5.920
  6.060
Adjusted equity ratio
  0.035
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
Depreciation, amort., depletion, $m
  2
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Funds from operations, $m
  -24
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  28
  29
  30
  31
Change in working capital, $m
  -3
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
Cash from operations, $m
  -21
  11
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
New CAPEX, $m
  -5
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -3
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
Free cash flow, $m
  -24
  10
  10
  11
  11
  11
  11
  12
  12
  13
  13
  13
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  24
  25
  27
  28
  29
Issuance/(repayment) of debt, $m
  0
  -4
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  11
  11
  12
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
  0
Cash from financing (excl. dividends), $m  
  10
  -4
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  11
  11
  12
Total cash flow (excl. dividends), $m
  -20
  6
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  41
Retained Cash Flow (-), $m
  2
  -6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Prev. year cash balance distribution, $m
 
  83
  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
 
  83
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
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
 
  80
  11
  11
  11
  10
  10
  10
  9
  9
  9
  8
  8
  7
  7
  6
  5
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
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
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China Finance Online Co. Limited is a Web-based financial services company in China. The Company provides Chinese retail investors with online access to securities and commodities trading services, wealth management products, securities investment advisory services, as well as financial database and analytics services to institutional customers. The Company operates through three segments: commodities brokerage services, online financial information and advisory service, and other related services in the People's Republic of China (PRC), and Hong Kong brokerage services. The Company offers financial software, information services and securities investment advisory services to retail investors in China. Through its subsidiary, Shenzhen Genius Information Technology Co., Ltd., the Company provides financial database and analytics to institutional customers, including domestic financial, research, academic and regulatory institutions.

FINANCIAL RATIOS  of  China Finance Online ADR (JRJC)

Valuation Ratios
P/E Ratio -137
Price to Sales 3.3
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow -13
Price to Free Cash Flow -10.5
Growth Rates
Sales Growth Rate -22.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 66.7%
Cap. Spend. - 3 Yr. Gr. Rate 38%
Financial Strength
Quick Ratio NaN
Current Ratio 0.5
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -1.3%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital -2.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.5%
Return On Equity -2.3%
Return On Equity - 3 Yr. Avg. 5.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 75.9%
Gross Margin - 3 Yr. Avg. 77.7%
EBITDA Margin -6%
EBITDA Margin - 3 Yr. Avg. 4.2%
Operating Margin -33.7%
Oper. Margin - 3 Yr. Avg. -11.5%
Pre-Tax Margin -8.4%
Pre-Tax Margin - 3 Yr. Avg. 1.9%
Net Profit Margin -2.4%
Net Profit Margin - 3 Yr. Avg. 3.3%
Effective Tax Rate -57.1%
Eff/ Tax Rate - 3 Yr. Avg. -21.2%
Payout Ratio 0%

JRJC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the JRJC stock intrinsic value calculation we used $83 million for the last fiscal year's total revenue generated by China Finance Online ADR. The default revenue input number comes from 2016 income statement of China Finance Online ADR. 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 JRJC 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 JRJC is calculated based on our internal credit rating of China Finance Online ADR, 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 China Finance Online ADR.
    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 JRJC stock the variable cost ratio is equal to 84.3%.

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 JRJC 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 China Finance Online ADR.

Corporate tax rate of 27% is the nominal tax rate for China Finance Online ADR. 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 JRJC 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 JRJC are equal to 8.4%.

Life of production assets of 5.3 years is the average useful life of capital assets used in China Finance Online ADR 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 JRJC is equal to -21.7%. 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 - $86 million for China Finance Online ADR - 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 22.941 million for China Finance Online ADR 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 China Finance Online ADR at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ China Finance Online reports 2Q loss   [Aug-14-17 11:34PM  Associated Press]
▶ China Finance Online reports 1Q loss   [Jun-14-17 05:28PM  Associated Press]
▶ China Finance Online Announces Management Change   [May-15-17 08:00AM  PR Newswire]
▶ China Finance Online reports 4Q loss   [Apr-13-17 05:40PM  Associated Press]
▶ CHINA FINANCE ONLINE CO. LTD Financials   [May-03-16 01:04PM  EDGAR Online Financials]
▶ China Finance Online Announces New Office in Beijing   [Jul-23  08:00AM  PR Newswire]
▶ China Finance Online Regains Nasdaq Compliance   [Jul-14  08:00AM  PR Newswire]
Financial statements of JRJC
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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