Intrinsic value of Radcom Ltd. - RDCM

Previous Close

$7.32

  Intrinsic Value

$6.43

stock screener

  Rating & Target

hold

-12%

Previous close

$7.32

 
Intrinsic value

$6.43

 
Up/down potential

-12%

 
Rating

hold

We calculate the intrinsic value of RDCM 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, %
  26.20
  24.08
  22.17
  20.45
  18.91
  17.52
  16.27
  15.14
  14.13
  13.21
  12.39
  11.65
  10.99
  10.39
  9.85
  9.36
  8.93
  8.54
  8.18
  7.86
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
Revenue, $m
  47
  58
  71
  85
  101
  119
  139
  160
  182
  206
  232
  259
  287
  317
  348
  381
  415
  450
  487
  525
  565
  606
  649
  694
  740
  789
  839
  891
  946
  1,002
Variable operating expenses, $m
  39
  49
  59
  71
  85
  100
  116
  134
  153
  173
  194
  217
  241
  266
  292
  319
  347
  377
  408
  440
  473
  508
  544
  581
  620
  661
  703
  747
  792
  840
Fixed operating expenses, $m
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
Total operating expenses, $m
  42
  52
  62
  74
  88
  103
  119
  138
  157
  177
  198
  221
  245
  270
  296
  323
  351
  381
  413
  445
  478
  513
  549
  586
  625
  666
  708
  753
  798
  846
Operating income, $m
  4
  6
  8
  11
  13
  16
  19
  22
  26
  30
  34
  38
  43
  47
  52
  57
  63
  68
  74
  80
  87
  93
  100
  107
  115
  122
  130
  139
  148
  157
EBITDA, $m
  5
  7
  9
  11
  14
  17
  20
  24
  28
  32
  36
  40
  45
  50
  55
  61
  67
  73
  79
  85
  92
  99
  106
  114
  122
  130
  138
  147
  156
  166
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
Earnings before tax, $m
  4
  6
  8
  10
  12
  14
  17
  20
  23
  26
  30
  34
  38
  42
  46
  50
  55
  60
  65
  70
  76
  81
  87
  94
  100
  107
  114
  121
  128
  136
Tax expense, $m
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
  18
  19
  20
  22
  24
  25
  27
  29
  31
  33
  35
  37
Net income, $m
  3
  4
  6
  7
  9
  11
  12
  15
  17
  19
  22
  25
  27
  30
  34
  37
  40
  44
  47
  51
  55
  59
  64
  68
  73
  78
  83
  88
  94
  99

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
  65
  79
  95
  113
  133
  154
  178
  203
  229
  258
  288
  320
  353
  388
  424
  462
  501
  542
  585
  629
  675
  723
  773
  824
  878
  934
  992
  1,053
  1,116
Adjusted assets (=assets-cash), $m
  52
  65
  79
  95
  113
  133
  154
  178
  203
  229
  258
  288
  320
  353
  388
  424
  462
  501
  542
  585
  629
  675
  723
  773
  824
  878
  934
  992
  1,053
  1,116
Revenue / Adjusted assets
  0.904
  0.892
  0.899
  0.895
  0.894
  0.895
  0.903
  0.899
  0.897
  0.900
  0.899
  0.899
  0.897
  0.898
  0.897
  0.899
  0.898
  0.898
  0.899
  0.897
  0.898
  0.898
  0.898
  0.898
  0.898
  0.899
  0.898
  0.898
  0.898
  0.898
Average production assets, $m
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  11
  12
  13
  15
  16
  18
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  43
  46
Working capital, $m
  15
  19
  23
  28
  34
  39
  46
  53
  60
  68
  77
  86
  95
  105
  115
  126
  137
  149
  161
  174
  187
  201
  215
  230
  245
  261
  278
  295
  313
  332
Total debt, $m
  4
  9
  14
  20
  27
  34
  42
  51
  61
  71
  81
  93
  105
  117
  130
  144
  158
  173
  188
  204
  221
  238
  256
  275
  294
  315
  336
  358
  380
  404
Total liabilities, $m
  20
  24
  30
  36
  42
  50
  58
  67
  76
  86
  97
  108
  120
  133
  146
  159
  174
  188
  204
  220
  237
  254
  272
  291
  310
  330
  351
  373
  396
  420
Total equity, $m
  32
  40
  49
  59
  70
  83
  96
  111
  126
  143
  161
  180
  199
  220
  242
  265
  288
  313
  338
  365
  393
  421
  451
  482
  514
  548
  583
  619
  657
  696
Total liabilities and equity, $m
  52
  64
  79
  95
  112
  133
  154
  178
  202
  229
  258
  288
  319
  353
  388
  424
  462
  501
  542
  585
  630
  675
  723
  773
  824
  878
  934
  992
  1,053
  1,116
Debt-to-equity ratio
  0.120
  0.220
  0.290
  0.340
  0.380
  0.420
  0.440
  0.460
  0.480
  0.490
  0.510
  0.520
  0.520
  0.530
  0.540
  0.540
  0.550
  0.550
  0.560
  0.560
  0.560
  0.570
  0.570
  0.570
  0.570
  0.570
  0.580
  0.580
  0.580
  0.580
Adjusted equity ratio
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624
  0.624

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  4
  6
  7
  9
  11
  12
  15
  17
  19
  22
  25
  27
  30
  34
  37
  40
  44
  47
  51
  55
  59
  64
  68
  73
  78
  83
  88
  94
  99
Depreciation, amort., depletion, $m
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
Funds from operations, $m
  4
  5
  6
  8
  10
  12
  14
  16
  19
  21
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  60
  65
  70
  75
  80
  85
  91
  96
  102
  109
Change in working capital, $m
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
Cash from operations, $m
  1
  1
  2
  3
  4
  6
  7
  9
  11
  13
  15
  18
  21
  23
  26
  29
  33
  36
  40
  43
  47
  51
  56
  60
  64
  69
  74
  79
  84
  90
Maintenance CAPEX, $m
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
New CAPEX, $m
  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
  -2
  -2
  -3
  -3
Cash from investing activities, $m
  0
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -11
  -12
Free cash flow, $m
  0
  0
  1
  2
  3
  4
  5
  7
  9
  10
  12
  15
  17
  19
  22
  25
  28
  31
  34
  37
  41
  44
  48
  52
  56
  60
  64
  69
  74
  78
Issuance/(repayment) of debt, $m
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
Issuance/(repurchase) of shares, $m
  3
  3
  3
  3
  2
  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
Cash from financing (excl. dividends), $m  
  7
  8
  8
  9
  9
  9
  9
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
Total cash flow (excl. dividends), $m
  7
  8
  10
  11
  12
  13
  14
  16
  18
  20
  23
  26
  29
  32
  35
  38
  42
  46
  49
  53
  57
  62
  66
  71
  75
  80
  85
  91
  96
  102
Retained Cash Flow (-), $m
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
Prev. year cash balance distribution, $m
  51
  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
  51
  1
  1
  1
  1
  1
  1
  1
  2
  4
  5
  7
  9
  11
  13
  16
  18
  21
  24
  27
  30
  33
  36
  40
  43
  47
  51
  54
  59
  63
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
  49
  1
  1
  1
  1
  1
  1
  1
  1
  2
  3
  3
  3
  4
  4
  4
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
Current shareholders' claim on cash, %
  90.7
  83.9
  79.1
  75.6
  73.3
  71.9
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2
  71.2

RADCOM Ltd. (RADCOM) provides service assurance and customer experience management solutions for communication service providers (CSPs). The Company provides solutions for networks, including long-term evolution (LTE), LTE Advanced (LTE-A), voice over LTE (VoLTE), Internet protocol multimedia subsystem (IMS), Voice over Internet protocol (VoIP), universal mobile telecommunications system (UMTS) or global system for mobile communications (GSM) and mobile broadband. Its software-based solutions enable CSPs to manage both existing networks and network functions virtualization (NFV) based architectures. Its products and solutions include The MaveriQ Solution for Service Assurance and customer experience management (CEM). The MaveriQ solution is a probe-based customer and service assurance solution designed to enable CSPs to carry out end-to-end voice and data quality monitoring and to manage their networks and services. The MaveriQ solution offers analysis and troubleshooting tools.

FINANCIAL RATIOS  of  Radcom Ltd. (RDCM)

Valuation Ratios
P/E Ratio 42.4
Price to Sales 2.8
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 9.4
Price to Free Cash Flow 10.6
Growth Rates
Sales Growth Rate 57.9%
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 NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital 8%
Ret/ On T. Cap. - 3 Yr. Avg. 3%
Return On Equity 8%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 70%
Gross Margin - 3 Yr. Avg. 68.7%
EBITDA Margin 6.7%
EBITDA Margin - 3 Yr. Avg. 1.9%
Operating Margin 6.7%
Oper. Margin - 3 Yr. Avg. 5%
Pre-Tax Margin 6.7%
Pre-Tax Margin - 3 Yr. Avg. 1.9%
Net Profit Margin 6.7%
Net Profit Margin - 3 Yr. Avg. 1.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

RDCM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RDCM stock intrinsic value calculation we used $37 million for the last fiscal year's total revenue generated by Radcom Ltd.. The default revenue input number comes from 0001 income statement of Radcom Ltd.. 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 RDCM stock valuation model: a) initial revenue growth rate of 26.2% 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 RDCM is calculated based on our internal credit rating of Radcom Ltd., 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 Radcom Ltd..
    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 RDCM stock the variable cost ratio is equal to 83.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3 million in the base year in the intrinsic value calculation for RDCM 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 Radcom Ltd..

Corporate tax rate of 27% is the nominal tax rate for Radcom Ltd.. 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 RDCM 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 RDCM are equal to 4.6%.

Life of production assets of 3.2 years is the average useful life of capital assets used in Radcom Ltd. 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 RDCM is equal to 33.1%. 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 - $76.396 million for Radcom Ltd. - 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 13.642 million for Radcom Ltd. 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 Radcom Ltd. at the current share price and the inputted number of shares is $0.1 billion.

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