Intrinsic value of NAPCO Security Technologies, Inc. - NSSC

Previous Close

$19.57

  Intrinsic Value

$26.14

stock screener

  Rating & Target

buy

+34%

Previous close

$19.57

 
Intrinsic value

$26.14

 
Up/down potential

+34%

 
Rating

buy

We calculate the intrinsic value of NSSC 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 0.4

 

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, %
  17.60
  16.34
  15.21
  14.19
  13.27
  12.44
  11.70
  11.03
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.90
  5.81
  5.73
  5.66
  5.59
Revenue, $m
  108
  126
  145
  166
  188
  211
  236
  262
  289
  317
  347
  378
  411
  444
  479
  516
  553
  593
  634
  676
  720
  766
  814
  864
  916
  970
  1,026
  1,085
  1,146
  1,210
Variable operating expenses, $m
  54
  63
  72
  82
  93
  104
  117
  129
  143
  157
  171
  186
  202
  218
  235
  253
  272
  291
  311
  332
  354
  376
  400
  424
  450
  476
  504
  533
  563
  595
Fixed operating expenses, $m
  39
  40
  41
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
  52
  53
  54
  55
  56
  57
  59
  60
  61
  63
  64
  65
  67
  68
  70
  71
  73
Total operating expenses, $m
  93
  103
  113
  123
  135
  147
  161
  174
  189
  204
  219
  235
  252
  270
  288
  307
  327
  347
  368
  391
  414
  437
  463
  488
  515
  543
  572
  603
  634
  668
Operating income, $m
  15
  24
  32
  42
  52
  63
  75
  87
  100
  113
  128
  143
  158
  174
  191
  208
  227
  245
  265
  285
  306
  328
  351
  375
  400
  426
  454
  482
  512
  543
EBITDA, $m
  17
  26
  35
  45
  55
  66
  78
  91
  104
  118
  132
  147
  163
  179
  196
  214
  233
  252
  272
  293
  314
  337
  361
  385
  411
  437
  465
  494
  525
  556
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
Earnings before tax, $m
  15
  23
  32
  42
  52
  63
  74
  86
  99
  112
  127
  142
  157
  173
  189
  206
  224
  243
  262
  282
  303
  325
  348
  371
  396
  422
  449
  477
  506
  537
Tax expense, $m
  4
  6
  9
  11
  14
  17
  20
  23
  27
  30
  34
  38
  42
  47
  51
  56
  61
  66
  71
  76
  82
  88
  94
  100
  107
  114
  121
  129
  137
  145
Net income, $m
  11
  17
  24
  30
  38
  46
  54
  63
  72
  82
  93
  103
  114
  126
  138
  151
  164
  177
  191
  206
  221
  237
  254
  271
  289
  308
  327
  348
  369
  392

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
  86
  100
  115
  132
  149
  168
  188
  208
  230
  253
  276
  301
  327
  354
  382
  411
  441
  472
  504
  538
  573
  610
  648
  688
  729
  772
  817
  864
  913
  964
Adjusted assets (=assets-cash), $m
  86
  100
  115
  132
  149
  168
  188
  208
  230
  253
  276
  301
  327
  354
  382
  411
  441
  472
  504
  538
  573
  610
  648
  688
  729
  772
  817
  864
  913
  964
Revenue / Adjusted assets
  1.256
  1.260
  1.261
  1.258
  1.262
  1.256
  1.255
  1.260
  1.257
  1.253
  1.257
  1.256
  1.257
  1.254
  1.254
  1.255
  1.254
  1.256
  1.258
  1.257
  1.257
  1.256
  1.256
  1.256
  1.257
  1.256
  1.256
  1.256
  1.255
  1.255
Average production assets, $m
  12
  14
  17
  19
  21
  24
  27
  30
  33
  36
  40
  43
  47
  51
  55
  59
  63
  68
  72
  77
  82
  87
  93
  98
  104
  111
  117
  124
  131
  138
Working capital, $m
  46
  53
  61
  70
  80
  89
  100
  111
  122
  135
  147
  160
  174
  188
  203
  219
  235
  251
  269
  287
  305
  325
  345
  366
  388
  411
  435
  460
  486
  513
Total debt, $m
  2
  4
  6
  8
  10
  13
  15
  18
  21
  24
  27
  31
  34
  38
  41
  45
  49
  53
  58
  62
  67
  72
  77
  82
  88
  94
  100
  106
  112
  119
Total liabilities, $m
  12
  13
  15
  18
  20
  22
  25
  28
  31
  34
  37
  40
  44
  47
  51
  55
  59
  63
  68
  72
  77
  82
  87
  92
  98
  103
  109
  116
  122
  129
Total equity, $m
  75
  87
  100
  114
  129
  145
  162
  180
  199
  219
  239
  261
  283
  306
  330
  356
  382
  409
  437
  466
  497
  528
  561
  596
  631
  669
  708
  748
  790
  835
Total liabilities and equity, $m
  87
  100
  115
  132
  149
  167
  187
  208
  230
  253
  276
  301
  327
  353
  381
  411
  441
  472
  505
  538
  574
  610
  648
  688
  729
  772
  817
  864
  912
  964
Debt-to-equity ratio
  0.020
  0.040
  0.060
  0.070
  0.080
  0.090
  0.090
  0.100
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
Adjusted equity ratio
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  17
  24
  30
  38
  46
  54
  63
  72
  82
  93
  103
  114
  126
  138
  151
  164
  177
  191
  206
  221
  237
  254
  271
  289
  308
  327
  348
  369
  392
Depreciation, amort., depletion, $m
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  14
Funds from operations, $m
  13
  19
  26
  33
  41
  49
  58
  67
  76
  86
  97
  108
  119
  131
  143
  156
  170
  184
  198
  213
  229
  246
  263
  281
  299
  319
  339
  360
  382
  405
Change in working capital, $m
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
Cash from operations, $m
  6
  12
  18
  24
  31
  39
  47
  56
  65
  74
  84
  94
  105
  117
  129
  141
  154
  167
  181
  195
  211
  226
  243
  260
  277
  296
  315
  335
  356
  378
Maintenance CAPEX, $m
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
New CAPEX, $m
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
Cash from investing activities, $m
  -3
  -3
  -3
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
Free cash flow, $m
  4
  9
  14
  20
  27
  34
  42
  50
  59
  68
  77
  87
  97
  108
  120
  131
  144
  156
  170
  184
  198
  213
  229
  245
  262
  279
  298
  317
  337
  358
Issuance/(repayment) of debt, $m
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
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
Cash from financing (excl. dividends), $m  
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
Total cash flow (excl. dividends), $m
  5
  10
  16
  23
  29
  37
  45
  53
  62
  71
  80
  90
  101
  112
  123
  135
  148
  161
  174
  188
  203
  218
  234
  250
  267
  285
  304
  323
  344
  365
Retained Cash Flow (-), $m
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
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
  -6
  -2
  3
  8
  14
  21
  28
  35
  43
  51
  60
  69
  79
  89
  99
  110
  122
  134
  146
  159
  172
  186
  201
  216
  231
  248
  265
  283
  301
  321
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
  -6
  -2
  3
  7
  11
  15
  19
  22
  25
  27
  28
  29
  30
  30
  29
  28
  26
  25
  22
  20
  18
  15
  13
  11
  9
  7
  6
  4
  3
  2
Current shareholders' claim on cash, %
  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

NAPCO Security Technologies, Inc. is a manufacturer of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold across the world principally to independent distributors, dealers and installers of security equipment. The Company manufactures and markets various products for alarm systems, which include automatic communicators, control panels, combination control panels/digital communicators and digital keypad systems, fire alarm control panel and area detectors. It manufactures a range of door locking devices, including microprocessor-based electronic door locks with push button, card reader and bio-metric operation, door alarms, mechanical door locks and simple dead bolt locks. It also markets peripheral and related equipment manufactured by other companies.

FINANCIAL RATIOS  of  NAPCO Security Technologies, Inc. (NSSC)

Valuation Ratios
P/E Ratio 61.4
Price to Sales 4.2
Price to Book 6.5
Price to Tangible Book
Price to Cash Flow 184.3
Price to Free Cash Flow 368.7
Growth Rates
Sales Growth Rate 4.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 7%
Total Debt to Equity 7%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.8%
Ret/ On Assets - 3 Yr. Avg. 8.6%
Return On Total Capital 10.3%
Ret/ On T. Cap. - 3 Yr. Avg. 9.9%
Return On Equity 11.1%
Return On Equity - 3 Yr. Avg. 11.4%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 34.5%
Gross Margin - 3 Yr. Avg. 33.9%
EBITDA Margin 8%
EBITDA Margin - 3 Yr. Avg. 8.5%
Operating Margin 6.9%
Oper. Margin - 3 Yr. Avg. 7.7%
Pre-Tax Margin 6.9%
Pre-Tax Margin - 3 Yr. Avg. 6.8%
Net Profit Margin 6.9%
Net Profit Margin - 3 Yr. Avg. 6.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

NSSC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NSSC stock intrinsic value calculation we used $92 million for the last fiscal year's total revenue generated by NAPCO Security Technologies, Inc.. The default revenue input number comes from 0001 income statement of NAPCO Security Technologies, Inc.. 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 NSSC stock valuation model: a) initial revenue growth rate of 17.6% 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 NSSC is calculated based on our internal credit rating of NAPCO Security Technologies, Inc., 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 NAPCO Security Technologies, Inc..
    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 NSSC stock the variable cost ratio is equal to 50%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $38 million in the base year in the intrinsic value calculation for NSSC 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 NAPCO Security Technologies, Inc..

Corporate tax rate of 27% is the nominal tax rate for NAPCO Security Technologies, Inc.. 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 NSSC 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 NSSC are equal to 11.4%.

Life of production assets of 10.2 years is the average useful life of capital assets used in NAPCO Security Technologies, Inc. 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 NSSC is equal to 42.4%. 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 - $63.453 million for NAPCO Security Technologies, Inc. - 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 18.470 million for NAPCO Security Technologies, Inc. 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 NAPCO Security Technologies, Inc. at the current share price and the inputted number of shares is $0.4 billion.

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