Intrinsic value of Mastech Digital - MHH

Previous Close

$6.31

  Intrinsic Value

$33.63

stock screener

  Rating & Target

str. buy

+433%

Previous close

$6.31

 
Intrinsic value

$33.63

 
Up/down potential

+433%

 
Rating

str. buy

We calculate the intrinsic value of MHH 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 0.0

 

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, %
  30.90
  28.31
  25.98
  23.88
  21.99
  20.29
  18.76
  17.39
  16.15
  15.03
  14.03
  13.13
  12.31
  11.58
  10.93
  10.33
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
Revenue, $m
  194
  248
  313
  388
  473
  569
  676
  793
  921
  1,060
  1,208
  1,367
  1,535
  1,713
  1,900
  2,097
  2,302
  2,517
  2,740
  2,973
  3,215
  3,467
  3,729
  4,001
  4,284
  4,578
  4,883
  5,201
  5,531
  5,875
Variable operating expenses, $m
  185
  236
  295
  365
  443
  532
  631
  739
  858
  986
  1,117
  1,264
  1,419
  1,584
  1,757
  1,938
  2,128
  2,327
  2,533
  2,749
  2,973
  3,206
  3,448
  3,699
  3,961
  4,232
  4,515
  4,808
  5,114
  5,432
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
  185
  236
  295
  365
  443
  532
  631
  739
  858
  986
  1,117
  1,264
  1,419
  1,584
  1,757
  1,938
  2,128
  2,327
  2,533
  2,749
  2,973
  3,206
  3,448
  3,699
  3,961
  4,232
  4,515
  4,808
  5,114
  5,432
Operating income, $m
  8
  13
  17
  23
  30
  37
  45
  54
  63
  74
  91
  103
  116
  129
  143
  158
  174
  190
  207
  224
  243
  262
  281
  302
  323
  345
  368
  392
  417
  443
EBITDA, $m
  16
  20
  26
  32
  39
  47
  56
  65
  76
  87
  99
  112
  126
  141
  156
  172
  189
  207
  225
  244
  264
  285
  306
  329
  352
  376
  401
  427
  455
  483
Interest expense (income), $m
  0
  2
  3
  5
  6
  8
  11
  13
  16
  19
  22
  26
  30
  34
  38
  43
  48
  53
  58
  64
  70
  76
  82
  89
  95
  103
  110
  118
  126
  134
  142
Earnings before tax, $m
  6
  9
  13
  17
  21
  26
  32
  38
  44
  52
  65
  73
  82
  91
  101
  110
  121
  132
  143
  155
  167
  180
  193
  206
  221
  235
  251
  267
  284
  301
Tax expense, $m
  2
  3
  3
  5
  6
  7
  9
  10
  12
  14
  18
  20
  22
  25
  27
  30
  33
  36
  39
  42
  45
  48
  52
  56
  60
  64
  68
  72
  77
  81
Net income, $m
  5
  7
  9
  12
  16
  19
  23
  28
  32
  38
  48
  54
  60
  66
  73
  81
  88
  96
  104
  113
  122
  131
  141
  151
  161
  172
  183
  195
  207
  220

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
  129
  165
  208
  258
  315
  379
  450
  528
  614
  706
  805
  911
  1,023
  1,141
  1,266
  1,397
  1,534
  1,677
  1,826
  1,981
  2,142
  2,310
  2,484
  2,666
  2,854
  3,050
  3,253
  3,465
  3,685
  3,914
Adjusted assets (=assets-cash), $m
  129
  165
  208
  258
  315
  379
  450
  528
  614
  706
  805
  911
  1,023
  1,141
  1,266
  1,397
  1,534
  1,677
  1,826
  1,981
  2,142
  2,310
  2,484
  2,666
  2,854
  3,050
  3,253
  3,465
  3,685
  3,914
Revenue / Adjusted assets
  1.504
  1.503
  1.505
  1.504
  1.502
  1.501
  1.502
  1.502
  1.500
  1.501
  1.501
  1.501
  1.500
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
  1.501
Average production assets, $m
  27
  34
  43
  53
  65
  79
  93
  109
  127
  146
  167
  189
  212
  236
  262
  289
  318
  347
  378
  410
  444
  478
  515
  552
  591
  632
  674
  718
  763
  811
Working capital, $m
  21
  27
  34
  42
  52
  62
  74
  86
  100
  115
  132
  149
  167
  187
  207
  229
  251
  274
  299
  324
  350
  378
  406
  436
  467
  499
  532
  567
  603
  640
Total debt, $m
  60
  87
  118
  154
  195
  241
  293
  350
  412
  479
  550
  627
  708
  794
  885
  979
  1,079
  1,182
  1,290
  1,403
  1,520
  1,641
  1,768
  1,899
  2,036
  2,178
  2,325
  2,479
  2,638
  2,805
Total liabilities, $m
  94
  120
  151
  187
  228
  275
  326
  383
  445
  512
  584
  660
  742
  827
  918
  1,013
  1,112
  1,216
  1,324
  1,436
  1,553
  1,675
  1,801
  1,933
  2,069
  2,211
  2,359
  2,512
  2,672
  2,838
Total equity, $m
  35
  46
  57
  71
  87
  104
  124
  145
  169
  194
  221
  250
  281
  314
  348
  384
  422
  461
  502
  545
  589
  635
  683
  733
  785
  839
  895
  953
  1,013
  1,076
Total liabilities and equity, $m
  129
  166
  208
  258
  315
  379
  450
  528
  614
  706
  805
  910
  1,023
  1,141
  1,266
  1,397
  1,534
  1,677
  1,826
  1,981
  2,142
  2,310
  2,484
  2,666
  2,854
  3,050
  3,254
  3,465
  3,685
  3,914
Debt-to-equity ratio
  1.700
  1.900
  2.060
  2.170
  2.250
  2.320
  2.370
  2.410
  2.440
  2.460
  2.490
  2.500
  2.520
  2.530
  2.540
  2.550
  2.560
  2.560
  2.570
  2.580
  2.580
  2.580
  2.590
  2.590
  2.590
  2.600
  2.600
  2.600
  2.600
  2.610
Adjusted equity ratio
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  7
  9
  12
  16
  19
  23
  28
  32
  38
  48
  54
  60
  66
  73
  81
  88
  96
  104
  113
  122
  131
  141
  151
  161
  172
  183
  195
  207
  220
Depreciation, amort., depletion, $m
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  8
  9
  10
  12
  13
  14
  15
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  40
Funds from operations, $m
  12
  15
  18
  21
  25
  29
  34
  39
  45
  51
  56
  63
  70
  78
  86
  95
  104
  113
  123
  133
  143
  154
  166
  178
  190
  203
  216
  230
  244
  259
Change in working capital, $m
  5
  6
  7
  8
  9
  10
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  32
  33
  35
  36
  38
Cash from operations, $m
  7
  9
  11
  13
  16
  19
  22
  26
  31
  36
  40
  46
  52
  59
  66
  73
  81
  90
  98
  108
  117
  127
  137
  148
  159
  171
  183
  195
  208
  222
Maintenance CAPEX, $m
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -5
  -5
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
New CAPEX, $m
  -6
  -8
  -9
  -10
  -12
  -13
  -15
  -16
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -47
Cash from investing activities, $m
  -7
  -9
  -11
  -12
  -15
  -16
  -19
  -21
  -23
  -25
  -28
  -30
  -32
  -35
  -38
  -40
  -42
  -45
  -48
  -50
  -53
  -57
  -59
  -63
  -66
  -70
  -73
  -77
  -81
  -84
Free cash flow, $m
  0
  0
  0
  0
  1
  2
  4
  6
  8
  11
  12
  15
  19
  24
  28
  33
  39
  45
  51
  57
  64
  71
  78
  85
  93
  101
  110
  118
  128
  137
Issuance/(repayment) of debt, $m
  22
  26
  31
  36
  41
  46
  52
  57
  62
  67
  72
  77
  81
  86
  90
  95
  99
  104
  108
  112
  117
  122
  126
  131
  137
  142
  148
  153
  160
  166
Issuance/(repurchase) of shares, $m
  4
  3
  2
  1
  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  
  26
  29
  33
  37
  41
  46
  52
  57
  62
  67
  72
  77
  81
  86
  90
  95
  99
  104
  108
  112
  117
  122
  126
  131
  137
  142
  148
  153
  160
  166
Total cash flow (excl. dividends), $m
  26
  29
  34
  38
  42
  49
  55
  62
  70
  77
  84
  92
  101
  110
  119
  128
  138
  148
  159
  169
  181
  192
  204
  217
  230
  243
  257
  272
  287
  303
Retained Cash Flow (-), $m
  -8
  -10
  -12
  -14
  -16
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
Prev. year cash balance distribution, $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 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
  17
  19
  22
  24
  27
  31
  36
  41
  46
  52
  57
  63
  70
  77
  85
  92
  100
  109
  118
  127
  136
  146
  156
  167
  178
  189
  201
  214
  227
  240
Discount rate, %
  9.10
  9.56
  10.03
  10.53
  11.06
  11.61
  12.19
  12.80
  13.44
  14.12
  14.82
  15.56
  16.34
  17.16
  18.02
  18.92
  19.86
  20.86
  21.90
  23.00
  24.15
  25.35
  26.62
  27.95
  29.35
  30.82
  32.36
  33.97
  35.67
  37.46
PV of cash for distribution, $m
  16
  16
  16
  16
  16
  16
  16
  16
  15
  14
  12
  11
  10
  8
  7
  6
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  90.5
  84.5
  81.0
  79.4
  79.3
  79.3
  79.3
  79.3
  79.3
  79.3
  79.3
  79.3
  79.3
  79.3
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Mastech Digital, Inc., formerly Mastech Holdings, Inc., is an information technology (IT) staffing and digital transformation services company. The Company offers Social, Mobility, Analytics and Cloud (SMAC), Automation and Internet of Things (IoT) technologies. It is engaged in providing IT associates in digital and mainstream technologies, digital transformation services around Salesforce.com and SAP HANA, as well as digital learning services. SAP HANA is an in-memory platform both for Systems, Applications and Products (SAP) and non-SAP customers. Its stack of digital transformation services focuses on providing customer relationship management (CRM) on the cloud through Salesforce, driving IT efficiencies through SAP HANA and using digital methods. Its digital learning services puts together a custom training program for various organizational needs. The Company serves a range of industries, including insurance, banking, healthcare, aviation, manufacturing and telecommunication.

FINANCIAL RATIOS  of  Mastech Digital (MHH)

Valuation Ratios
P/E Ratio 9.5
Price to Sales 0.2
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 14.2
Price to Free Cash Flow 14.2
Growth Rates
Sales Growth Rate 7.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 42.1%
Total Debt to Equity 52.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 7.8%
Ret/ On Assets - 3 Yr. Avg. 11.5%
Return On Total Capital 10.3%
Ret/ On T. Cap. - 3 Yr. Avg. 17.3%
Return On Equity 17.1%
Return On Equity - 3 Yr. Avg. 21.7%
Asset Turnover 3.4
Profitability Ratios
Gross Margin 18.9%
Gross Margin - 3 Yr. Avg. 18.7%
EBITDA Margin 3.8%
EBITDA Margin - 3 Yr. Avg. 4.4%
Operating Margin 3%
Oper. Margin - 3 Yr. Avg. 3.8%
Pre-Tax Margin 3%
Pre-Tax Margin - 3 Yr. Avg. 3.8%
Net Profit Margin 2.3%
Net Profit Margin - 3 Yr. Avg. 2.4%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 33.3%
Payout Ratio 0%

MHH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MHH stock intrinsic value calculation we used $147.882 million for the last fiscal year's total revenue generated by Mastech Digital. The default revenue input number comes from 0001 income statement of Mastech Digital. 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 MHH stock valuation model: a) initial revenue growth rate of 30.9% 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 9.1%, whose default value for MHH is calculated based on our internal credit rating of Mastech Digital, 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 Mastech Digital.
    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 MHH stock the variable cost ratio is equal to 96.6%.

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 MHH 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 5.4% for Mastech Digital.

Corporate tax rate of 27% is the nominal tax rate for Mastech Digital. 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 MHH 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 MHH are equal to 13.8%.

Life of production assets of 20.5 years is the average useful life of capital assets used in Mastech Digital 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 MHH is equal to 10.9%. 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 - $27.153 million for Mastech Digital - 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 5.477 million for Mastech Digital 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 Mastech Digital at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Mastech Digital, Inc. to Host Earnings Call   [Apr-26-18 07:55AM  ACCESSWIRE]
▶ How Financially Strong Is Mastech Digital Inc (MHH)?   [Oct-24-17 07:28AM  Simply Wall St.]
▶ At $10.56, Is Mastech Digital Inc (MHH) A Buy?   [Sep-20-17 07:09PM  Simply Wall St.]
▶ Mastech Digital buying InfoTrellis division for $55M   [Jul-14-17 10:35AM  American City Business Journals]
▶ Mastech Digital Completes Acquisition of InfoTrellis   [Jul-13-17 03:51PM  PR Newswire]
▶ Mastech Digital to Acquire InfoTrellis   [Jul-07-17 08:00AM  PR Newswire]

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