Intrinsic value of Luna Innovations - LUNA

Previous Close

$3.55

  Intrinsic Value

$14.63

stock screener

  Rating & Target

str. buy

+312%

Previous close

$3.55

 
Intrinsic value

$14.63

 
Up/down potential

+312%

 
Rating

str. buy

We calculate the intrinsic value of LUNA 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 0.1

 

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, %
  22.00
  20.30
  18.77
  17.39
  16.15
  15.04
  14.03
  13.13
  12.32
  11.59
  10.93
  10.33
  9.80
  9.32
  8.89
  8.50
  8.15
  7.84
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
Revenue, $m
  56
  68
  81
  95
  110
  126
  144
  163
  183
  204
  227
  250
  275
  300
  327
  355
  384
  414
  445
  478
  511
  546
  583
  621
  660
  701
  744
  789
  835
  883
Variable operating expenses, $m
  27
  32
  38
  45
  52
  60
  68
  77
  86
  96
  107
  118
  129
  141
  154
  167
  180
  194
  209
  224
  240
  257
  274
  292
  310
  330
  350
  371
  392
  415
Fixed operating expenses, $m
  26
  26
  27
  27
  28
  28
  29
  30
  30
  31
  32
  32
  33
  34
  35
  35
  36
  37
  38
  39
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
Total operating expenses, $m
  53
  58
  65
  72
  80
  88
  97
  107
  116
  127
  139
  150
  162
  175
  189
  202
  216
  231
  247
  263
  279
  297
  315
  334
  353
  374
  395
  417
  439
  463
Operating income, $m
  4
  9
  16
  23
  30
  38
  47
  56
  66
  77
  88
  100
  112
  125
  139
  153
  167
  182
  198
  214
  232
  249
  268
  287
  307
  328
  349
  372
  396
  420
EBITDA, $m
  6
  11
  18
  25
  33
  41
  51
  61
  71
  82
  94
  106
  119
  132
  146
  161
  176
  192
  209
  226
  243
  262
  281
  301
  322
  344
  367
  390
  415
  441
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
Earnings before tax, $m
  4
  9
  15
  22
  29
  37
  45
  54
  64
  74
  85
  96
  108
  120
  133
  147
  161
  175
  190
  206
  223
  240
  257
  276
  295
  315
  336
  358
  380
  404
Tax expense, $m
  1
  2
  4
  6
  8
  10
  12
  15
  17
  20
  23
  26
  29
  33
  36
  40
  43
  47
  51
  56
  60
  65
  69
  74
  80
  85
  91
  97
  103
  109
Net income, $m
  3
  7
  11
  16
  21
  27
  33
  40
  47
  54
  62
  70
  79
  88
  97
  107
  117
  128
  139
  151
  163
  175
  188
  201
  215
  230
  245
  261
  278
  295

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
  52
  62
  74
  87
  101
  116
  132
  150
  168
  188
  208
  230
  252
  276
  300
  326
  352
  380
  408
  438
  469
  501
  535
  569
  606
  643
  683
  723
  766
  810
Adjusted assets (=assets-cash), $m
  52
  62
  74
  87
  101
  116
  132
  150
  168
  188
  208
  230
  252
  276
  300
  326
  352
  380
  408
  438
  469
  501
  535
  569
  606
  643
  683
  723
  766
  810
Revenue / Adjusted assets
  1.077
  1.097
  1.095
  1.092
  1.089
  1.086
  1.091
  1.087
  1.089
  1.085
  1.091
  1.087
  1.091
  1.087
  1.090
  1.089
  1.091
  1.089
  1.091
  1.091
  1.090
  1.090
  1.090
  1.091
  1.089
  1.090
  1.089
  1.091
  1.090
  1.090
Average production assets, $m
  7
  8
  9
  11
  13
  15
  17
  19
  21
  24
  27
  29
  32
  35
  38
  42
  45
  48
  52
  56
  60
  64
  68
  73
  77
  82
  87
  92
  98
  103
Working capital, $m
  11
  13
  16
  18
  21
  24
  28
  31
  35
  39
  44
  48
  53
  58
  63
  68
  74
  80
  86
  92
  99
  105
  112
  120
  127
  135
  144
  152
  161
  171
Total debt, $m
  6
  10
  14
  18
  23
  28
  34
  40
  47
  54
  61
  68
  76
  84
  93
  102
  111
  121
  131
  142
  152
  164
  175
  188
  200
  214
  227
  242
  257
  272
Total liabilities, $m
  18
  22
  26
  30
  35
  41
  46
  53
  59
  66
  73
  81
  88
  97
  105
  114
  124
  133
  143
  154
  165
  176
  188
  200
  213
  226
  240
  254
  269
  284
Total equity, $m
  34
  40
  48
  56
  65
  75
  86
  97
  109
  122
  135
  149
  164
  179
  195
  211
  228
  246
  265
  284
  304
  325
  347
  370
  393
  418
  443
  470
  497
  526
Total liabilities and equity, $m
  52
  62
  74
  86
  100
  116
  132
  150
  168
  188
  208
  230
  252
  276
  300
  325
  352
  379
  408
  438
  469
  501
  535
  570
  606
  644
  683
  724
  766
  810
Debt-to-equity ratio
  0.180
  0.240
  0.290
  0.320
  0.350
  0.380
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.470
  0.480
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
  0.500
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.520
  0.520
Adjusted equity ratio
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  7
  11
  16
  21
  27
  33
  40
  47
  54
  62
  70
  79
  88
  97
  107
  117
  128
  139
  151
  163
  175
  188
  201
  215
  230
  245
  261
  278
  295
Depreciation, amort., depletion, $m
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  15
  16
  17
  18
  20
  21
Funds from operations, $m
  4
  9
  13
  18
  24
  30
  37
  44
  51
  59
  67
  76
  85
  95
  105
  115
  126
  138
  149
  162
  174
  188
  202
  216
  231
  246
  263
  280
  297
  316
Change in working capital, $m
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
Cash from operations, $m
  3
  6
  11
  16
  21
  27
  33
  40
  47
  55
  63
  72
  81
  90
  100
  110
  121
  132
  143
  155
  168
  181
  194
  209
  223
  238
  254
  271
  288
  306
Maintenance CAPEX, $m
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -20
New CAPEX, $m
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
Cash from investing activities, $m
  -2
  -2
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -20
  -20
  -21
  -22
  -23
  -26
Free cash flow, $m
  0
  4
  8
  12
  17
  22
  28
  34
  41
  48
  56
  64
  72
  81
  90
  99
  109
  119
  130
  141
  153
  165
  177
  190
  204
  218
  233
  248
  264
  281
Issuance/(repayment) of debt, $m
  3
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
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
Cash from financing (excl. dividends), $m  
  6
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
Total cash flow (excl. dividends), $m
  7
  8
  12
  17
  22
  28
  34
  41
  48
  55
  63
  71
  80
  89
  98
  108
  118
  129
  140
  152
  164
  176
  189
  203
  217
  231
  247
  263
  279
  297
Retained Cash Flow (-), $m
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -27
  -28
  -29
Prev. year cash balance distribution, $m
  22
  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
  1
  4
  8
  13
  18
  23
  29
  36
  42
  50
  57
  65
  74
  82
  92
  101
  111
  122
  132
  144
  155
  167
  180
  193
  207
  221
  236
  252
  268
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
  1
  4
  7
  10
  13
  16
  18
  21
  22
  24
  24
  25
  25
  24
  23
  22
  20
  19
  17
  15
  13
  11
  9
  8
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  94.1
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9

Luna Innovations Incorporated develops, manufactures and markets fiber optic sensing and test, and measurement products. The Company is focused on bringing technology solutions to measure and monitor processes in the aerospace, automotive, energy, composite, telecommunications and defense industries. The Company operates in two business segments: Products and Licensing, and Technology Development. The Products and Licensing segment develops, manufactures and markets its suite of products, including high-speed optical receiver (HSOR), custom optoelectronic subsystems (Optoelectronics), and Terahertz (THz) products, and fiber optic sensing, as well as test and measurement products. The Technology Development segment performs applied research principally in the areas of sensing and instrumentation, advanced materials and health sciences. The Company's HSOR transmission products are deployed in the Internet communications equipment infrastructure for high-speed bandwidth.

FINANCIAL RATIOS  of  Luna Innovations (LUNA)

Valuation Ratios
P/E Ratio -48.9
Price to Sales 1.7
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow -48.9
Growth Rates
Sales Growth Rate 34.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 5.7%
Total Debt to Equity 11.4%
Interest Coverage 0
Management Effectiveness
Return On Assets -3.5%
Ret/ On Assets - 3 Yr. Avg. 8.7%
Return On Total Capital -4.9%
Ret/ On T. Cap. - 3 Yr. Avg. 12.3%
Return On Equity -5.6%
Return On Equity - 3 Yr. Avg. 13.9%
Asset Turnover 1
Profitability Ratios
Gross Margin 37.3%
Gross Margin - 3 Yr. Avg. 38%
EBITDA Margin 3.4%
EBITDA Margin - 3 Yr. Avg. -6.7%
Operating Margin -3.4%
Oper. Margin - 3 Yr. Avg. -13.6%
Pre-Tax Margin -3.4%
Pre-Tax Margin - 3 Yr. Avg. -12%
Net Profit Margin -3.4%
Net Profit Margin - 3 Yr. Avg. 9.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 8.3%
Payout Ratio 0%

LUNA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LUNA stock intrinsic value calculation we used $46.237274 million for the last fiscal year's total revenue generated by Luna Innovations. The default revenue input number comes from 0001 income statement of Luna Innovations. 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 LUNA stock valuation model: a) initial revenue growth rate of 22% 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 LUNA is calculated based on our internal credit rating of Luna Innovations, 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 Luna Innovations.
    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 LUNA stock the variable cost ratio is equal to 47.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $25 million in the base year in the intrinsic value calculation for LUNA 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 6.3% for Luna Innovations.

Corporate tax rate of 27% is the nominal tax rate for Luna Innovations. 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 LUNA 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 LUNA are equal to 11.7%.

Life of production assets of 2.9 years is the average useful life of capital assets used in Luna Innovations 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 LUNA is equal to 19.3%. 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 - $49.537781 million for Luna Innovations - 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 27.932 million for Luna Innovations 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 Luna Innovations at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Luna Innovations Reports Strong Third-Quarter 2018 Results   [Nov-08-18 07:00AM  Business Wire]
▶ Penny Stocks to Watch for November 2018   [08:50AM  Investopedia]
▶ Luna Innovations Reports Record Second Quarter 2018   [Aug-01-18 07:05AM  Business Wire]
▶ Luna Innovations Reports Strong First Quarter 2018 Results   [May-09-18 04:00PM  Business Wire]
▶ Top Ranked Momentum Stocks to Buy for April 9th   [Apr-09-18 09:31AM  Zacks]
▶ Scott A. Graeff Named President and CEO of Luna Innovations   [Oct-23-17 09:00AM  Business Wire]
▶ New Strong Sell Stocks for May 16th   [May-16-17 10:29AM  Zacks]
▶ Luna to Present at the 9th Annual LD Micro Main Event   [Nov-28-16 09:00AM  Accesswire]

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