Intrinsic value of RCM Technologies, Inc. - RCMT

Previous Close

$4.00

  Intrinsic Value

$9.74

stock screener

  Rating & Target

str. buy

+144%

Previous close

$4.00

 
Intrinsic value

$9.74

 
Up/down potential

+144%

 
Rating

str. buy

We calculate the intrinsic value of RCMT 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, %
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
Revenue, $m
  217
  234
  252
  270
  290
  310
  331
  353
  375
  399
  423
  449
  476
  503
  532
  563
  594
  627
  662
  698
  735
  775
  816
  859
  904
  952
  1,001
  1,053
  1,108
  1,165
Variable operating expenses, $m
  151
  163
  176
  189
  202
  216
  230
  245
  261
  277
  293
  310
  329
  348
  368
  389
  411
  433
  457
  482
  508
  535
  564
  594
  625
  658
  692
  728
  766
  805
Fixed operating expenses, $m
  58
  60
  61
  62
  64
  65
  66
  68
  69
  71
  72
  74
  76
  77
  79
  81
  83
  84
  86
  88
  90
  92
  94
  96
  98
  100
  103
  105
  107
  109
Total operating expenses, $m
  209
  223
  237
  251
  266
  281
  296
  313
  330
  348
  365
  384
  405
  425
  447
  470
  494
  517
  543
  570
  598
  627
  658
  690
  723
  758
  795
  833
  873
  914
Operating income, $m
  7
  11
  15
  20
  24
  29
  34
  39
  45
  51
  58
  65
  71
  78
  85
  93
  101
  109
  118
  127
  137
  147
  158
  169
  181
  194
  207
  221
  235
  250
EBITDA, $m
  10
  14
  18
  23
  27
  32
  37
  43
  48
  54
  60
  67
  74
  81
  88
  96
  104
  112
  121
  131
  141
  151
  162
  173
  185
  198
  212
  226
  240
  256
Interest expense (income), $m
  0
  1
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
Earnings before tax, $m
  5
  9
  13
  17
  22
  26
  31
  36
  41
  47
  54
  60
  66
  73
  80
  87
  94
  102
  110
  119
  128
  138
  148
  159
  170
  182
  194
  207
  221
  236
Tax expense, $m
  1
  2
  4
  5
  6
  7
  8
  10
  11
  13
  15
  16
  18
  20
  21
  23
  25
  28
  30
  32
  35
  37
  40
  43
  46
  49
  52
  56
  60
  64
Net income, $m
  4
  7
  10
  13
  16
  19
  23
  26
  30
  34
  39
  44
  48
  53
  58
  63
  69
  75
  81
  87
  94
  101
  108
  116
  124
  133
  142
  151
  161
  172

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
  88
  95
  103
  110
  118
  126
  135
  144
  153
  163
  173
  183
  194
  205
  217
  229
  242
  256
  270
  284
  300
  316
  333
  350
  369
  388
  408
  429
  451
  475
Adjusted assets (=assets-cash), $m
  88
  95
  103
  110
  118
  126
  135
  144
  153
  163
  173
  183
  194
  205
  217
  229
  242
  256
  270
  284
  300
  316
  333
  350
  369
  388
  408
  429
  451
  475
Revenue / Adjusted assets
  2.466
  2.463
  2.447
  2.455
  2.458
  2.460
  2.452
  2.451
  2.451
  2.448
  2.445
  2.454
  2.454
  2.454
  2.452
  2.459
  2.455
  2.449
  2.452
  2.458
  2.450
  2.453
  2.450
  2.454
  2.450
  2.454
  2.453
  2.455
  2.457
  2.453
Average production assets, $m
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  43
  45
  47
  50
  52
  55
  58
  61
  64
Working capital, $m
  38
  41
  44
  47
  51
  54
  58
  62
  66
  70
  74
  79
  83
  88
  93
  98
  104
  110
  116
  122
  129
  136
  143
  150
  158
  167
  175
  184
  194
  204
Total debt, $m
  32
  37
  42
  47
  52
  57
  63
  69
  75
  81
  88
  95
  102
  110
  118
  126
  134
  143
  153
  163
  173
  183
  195
  206
  219
  232
  245
  259
  274
  289
Total liabilities, $m
  59
  63
  68
  73
  79
  84
  90
  96
  102
  108
  115
  122
  129
  137
  144
  153
  161
  170
  180
  189
  200
  210
  221
  233
  245
  258
  272
  286
  301
  316
Total equity, $m
  29
  32
  34
  37
  39
  42
  45
  48
  51
  54
  58
  61
  65
  69
  72
  77
  81
  85
  90
  95
  100
  105
  111
  117
  123
  130
  136
  143
  151
  159
Total liabilities and equity, $m
  88
  95
  102
  110
  118
  126
  135
  144
  153
  162
  173
  183
  194
  206
  216
  230
  242
  255
  270
  284
  300
  315
  332
  350
  368
  388
  408
  429
  452
  475
Debt-to-equity ratio
  1.090
  1.150
  1.210
  1.270
  1.320
  1.360
  1.400
  1.440
  1.470
  1.500
  1.530
  1.560
  1.580
  1.600
  1.620
  1.640
  1.660
  1.680
  1.700
  1.710
  1.730
  1.740
  1.750
  1.770
  1.780
  1.790
  1.800
  1.810
  1.820
  1.830
Adjusted equity ratio
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  7
  10
  13
  16
  19
  23
  26
  30
  34
  39
  44
  48
  53
  58
  63
  69
  75
  81
  87
  94
  101
  108
  116
  124
  133
  142
  151
  161
  172
Depreciation, amort., depletion, $m
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
Funds from operations, $m
  7
  10
  13
  16
  19
  22
  26
  30
  34
  38
  41
  46
  51
  55
  61
  66
  72
  78
  84
  90
  97
  104
  112
  120
  128
  137
  147
  156
  167
  177
Change in working capital, $m
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
Cash from operations, $m
  4
  7
  9
  12
  16
  19
  22
  26
  30
  34
  37
  41
  46
  51
  55
  61
  66
  72
  78
  84
  91
  97
  105
  112
  120
  129
  138
  147
  157
  167
Maintenance CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
Free cash flow, $m
  2
  5
  7
  10
  13
  16
  20
  23
  27
  30
  34
  38
  42
  47
  52
  57
  62
  67
  73
  79
  85
  92
  99
  106
  114
  122
  131
  140
  149
  159
Issuance/(repayment) of debt, $m
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
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  
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
Total cash flow (excl. dividends), $m
  6
  9
  12
  15
  19
  22
  25
  29
  33
  37
  41
  45
  50
  54
  59
  65
  70
  76
  82
  89
  95
  103
  110
  118
  126
  135
  144
  154
  164
  175
Retained Cash Flow (-), $m
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
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
  4
  7
  10
  13
  16
  19
  23
  26
  30
  34
  37
  41
  46
  51
  55
  61
  66
  72
  78
  84
  90
  97
  104
  112
  120
  129
  137
  147
  157
  167
Discount rate, %
  9.40
  9.87
  10.36
  10.88
  11.43
  12.00
  12.60
  13.23
  13.89
  14.58
  15.31
  16.08
  16.88
  17.73
  18.61
  19.54
  20.52
  21.54
  22.62
  23.75
  24.94
  26.19
  27.50
  28.87
  30.32
  31.83
  33.42
  35.09
  36.85
  38.69
PV of cash for distribution, $m
  4
  6
  7
  8
  9
  10
  10
  10
  9
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
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

RCM Technologies, Inc. is a provider of business and technology solutions. The Company is also a provider of specialty healthcare services to healthcare institutions and educational facilities. The Company operates through three segments: Engineering, Information Technology (IT) and Specialty Health Care Services. Its Engineering segment provides engineering and design, engineering analysis, technical writing and technical support services, engineer, procure and construction management (EPC), as well as demand side management and energy conservation services. Its IT segment provides enterprise business solutions, application services, infrastructure solutions, competitive advantage and productivity solutions, life sciences solutions and other selected vertical market specific offerings. The Specialty Health Care Services segment provides the staffing of healthcare professionals, primarily therapists, nurses and care givers. It services various national and international companies.

FINANCIAL RATIOS  of  RCM Technologies, Inc. (RCMT)

Valuation Ratios
P/E Ratio 23.9
Price to Sales 0.3
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 4
Price to Free Cash Flow 4.3
Growth Rates
Sales Growth Rate -5.4%
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 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 45.2%
Total Debt to Equity 45.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 5.9%
Return On Total Capital 4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8.6%
Return On Equity 6.3%
Return On Equity - 3 Yr. Avg. 11.9%
Asset Turnover 2.3
Profitability Ratios
Gross Margin 26.7%
Gross Margin - 3 Yr. Avg. 27.2%
EBITDA Margin 2.8%
EBITDA Margin - 3 Yr. Avg. 4.4%
Operating Margin 2.3%
Oper. Margin - 3 Yr. Avg. 4.1%
Pre-Tax Margin 1.7%
Pre-Tax Margin - 3 Yr. Avg. 3.7%
Net Profit Margin 1.1%
Net Profit Margin - 3 Yr. Avg. 2.7%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 28%
Payout Ratio 0%

RCMT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RCMT stock intrinsic value calculation we used $200 million for the last fiscal year's total revenue generated by RCM Technologies, Inc.. The default revenue input number comes from 0001 income statement of RCM 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 RCMT stock valuation model: a) initial revenue growth rate of 8.3% 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 9.4%, whose default value for RCMT is calculated based on our internal credit rating of RCM 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 RCM 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 RCMT stock the variable cost ratio is equal to 70%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $57 million in the base year in the intrinsic value calculation for RCMT 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 RCM Technologies, Inc..

Corporate tax rate of 27% is the nominal tax rate for RCM 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 RCMT 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 RCMT are equal to 5.5%.

Life of production assets of 11.8 years is the average useful life of capital assets used in RCM 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 RCMT is equal to 17.5%. 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 - $27.199 million for RCM 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 12.871 million for RCM 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 RCM Technologies, Inc. at the current share price and the inputted number of shares is $0.1 billion.

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