Intrinsic value of Ruth's Hospitality Group, Inc. - RUTH

Previous Close

$22.67

  Intrinsic Value

$20.37

stock screener

  Rating & Target

hold

-10%

Previous close

$22.67

 
Intrinsic value

$20.37

 
Up/down potential

-10%

 
Rating

hold

We calculate the intrinsic value of RUTH 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 0.7

 

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, %
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  463
  476
  490
  506
  523
  541
  561
  582
  605
  630
  656
  683
  713
  744
  777
  812
  848
  887
  928
  972
  1,017
  1,065
  1,116
  1,169
  1,225
  1,284
  1,346
  1,412
  1,481
  1,553
Variable operating expenses, $m
  406
  417
  429
  442
  457
  472
  489
  508
  527
  548
  562
  586
  611
  637
  666
  695
  727
  760
  795
  833
  872
  913
  956
  1,002
  1,050
  1,101
  1,154
  1,210
  1,269
  1,331
Fixed operating expenses, $m
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
Total operating expenses, $m
  411
  422
  434
  447
  463
  478
  495
  514
  533
  554
  568
  592
  618
  644
  673
  702
  734
  767
  803
  841
  880
  921
  964
  1,010
  1,059
  1,110
  1,163
  1,219
  1,278
  1,341
Operating income, $m
  53
  54
  56
  58
  61
  63
  66
  69
  72
  75
  87
  91
  95
  100
  104
  109
  114
  119
  125
  131
  138
  144
  151
  159
  167
  175
  184
  193
  202
  213
EBITDA, $m
  76
  78
  81
  83
  86
  89
  93
  96
  100
  104
  109
  113
  118
  124
  129
  135
  142
  148
  155
  163
  170
  179
  187
  197
  206
  216
  227
  238
  250
  263
Interest expense (income), $m
  1
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
Earnings before tax, $m
  50
  52
  53
  55
  57
  60
  62
  64
  67
  70
  82
  85
  89
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
  144
  150
  157
  165
  173
  181
  190
Tax expense, $m
  14
  14
  14
  15
  15
  16
  17
  17
  18
  19
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  51
Net income, $m
  37
  38
  39
  40
  42
  43
  45
  47
  49
  51
  60
  62
  65
  67
  70
  73
  77
  80
  84
  87
  91
  96
  100
  105
  110
  115
  120
  126
  132
  139

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
  261
  268
  276
  285
  295
  305
  316
  328
  341
  355
  369
  385
  401
  419
  438
  457
  478
  500
  523
  547
  573
  600
  629
  659
  690
  724
  759
  795
  834
  875
Adjusted assets (=assets-cash), $m
  261
  268
  276
  285
  295
  305
  316
  328
  341
  355
  369
  385
  401
  419
  438
  457
  478
  500
  523
  547
  573
  600
  629
  659
  690
  724
  759
  795
  834
  875
Revenue / Adjusted assets
  1.774
  1.776
  1.775
  1.775
  1.773
  1.774
  1.775
  1.774
  1.774
  1.775
  1.778
  1.774
  1.778
  1.776
  1.774
  1.777
  1.774
  1.774
  1.774
  1.777
  1.775
  1.775
  1.774
  1.774
  1.775
  1.773
  1.773
  1.776
  1.776
  1.775
Average production assets, $m
  166
  171
  176
  182
  188
  194
  201
  209
  217
  226
  235
  245
  256
  267
  279
  291
  305
  319
  333
  349
  365
  382
  401
  420
  440
  461
  483
  507
  532
  557
Working capital, $m
  -66
  -68
  -70
  -72
  -74
  -77
  -80
  -83
  -86
  -89
  -93
  -97
  -101
  -106
  -110
  -115
  -120
  -126
  -132
  -138
  -144
  -151
  -158
  -166
  -174
  -182
  -191
  -200
  -210
  -221
Total debt, $m
  45
  50
  55
  61
  67
  73
  81
  88
  97
  106
  115
  125
  136
  147
  159
  172
  185
  199
  214
  230
  247
  264
  283
  302
  322
  344
  367
  390
  415
  442
Total liabilities, $m
  169
  173
  178
  184
  190
  197
  204
  212
  220
  229
  239
  249
  259
  271
  283
  295
  309
  323
  338
  354
  370
  388
  406
  426
  446
  467
  490
  514
  539
  565
Total equity, $m
  92
  95
  98
  101
  104
  108
  112
  116
  121
  126
  131
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  212
  223
  233
  244
  256
  269
  282
  295
  310
Total liabilities and equity, $m
  261
  268
  276
  285
  294
  305
  316
  328
  341
  355
  370
  385
  401
  419
  438
  457
  478
  500
  523
  548
  573
  600
  629
  659
  690
  723
  759
  796
  834
  875
Debt-to-equity ratio
  0.490
  0.520
  0.560
  0.600
  0.640
  0.680
  0.720
  0.760
  0.800
  0.840
  0.880
  0.920
  0.960
  0.990
  1.030
  1.060
  1.100
  1.130
  1.160
  1.190
  1.220
  1.240
  1.270
  1.300
  1.320
  1.340
  1.370
  1.390
  1.410
  1.430
Adjusted equity ratio
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  37
  38
  39
  40
  42
  43
  45
  47
  49
  51
  60
  62
  65
  67
  70
  73
  77
  80
  84
  87
  91
  96
  100
  105
  110
  115
  120
  126
  132
  139
Depreciation, amort., depletion, $m
  24
  24
  24
  25
  26
  26
  27
  27
  28
  29
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  50
Funds from operations, $m
  60
  62
  63
  65
  67
  70
  72
  74
  77
  80
  81
  84
  88
  91
  95
  100
  104
  109
  114
  119
  124
  130
  136
  143
  149
  156
  164
  172
  180
  189
Change in working capital, $m
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
Cash from operations, $m
  62
  64
  66
  68
  70
  72
  75
  77
  80
  84
  85
  88
  92
  96
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
  157
  165
  173
  181
  190
  199
Maintenance CAPEX, $m
  -15
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
New CAPEX, $m
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
Cash from investing activities, $m
  -19
  -20
  -20
  -22
  -22
  -24
  -25
  -26
  -27
  -29
  -29
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -44
  -46
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -74
Free cash flow, $m
  43
  44
  45
  46
  47
  49
  50
  52
  53
  55
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  125
Issuance/(repayment) of debt, $m
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  23
  24
  25
  26
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
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  23
  24
  25
  26
Total cash flow (excl. dividends), $m
  48
  49
  50
  52
  53
  55
  57
  59
  62
  64
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  104
  109
  114
  120
  126
  132
  138
  145
  152
Retained Cash Flow (-), $m
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
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
  45
  46
  47
  49
  50
  52
  53
  55
  57
  59
  59
  62
  64
  67
  70
  73
  76
  79
  83
  86
  90
  95
  99
  104
  109
  114
  119
  125
  131
  137
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
  43
  42
  41
  40
  39
  37
  36
  34
  33
  31
  28
  26
  24
  22
  20
  18
  16
  15
  13
  11
  9
  8
  6
  5
  4
  3
  3
  2
  1
  1
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

Ruth's Hospitality Group, Inc. develops and operates fine dining restaurants under the name, Ruth's Chris Steak House. The Company operates through two segments. As of December 25, 2016, the Company-owned steakhouse restaurant segment included 68 Ruth's Chris Steak House restaurants and one Ruth's Chris Steak House restaurant, and the franchise operations segment included 81 franchisee-owned Ruth's Chris Steak House restaurants. Its restaurant's menu features a selection of Prime and Choice grade steaks, and other offerings. Its menu also includes lamb chops, fish, shrimp, crab, chicken and lobster. Its Ruth's Chris restaurants offer 10 to 13 appetizer items, including Orleans-style barbequed shrimp, mushrooms stuffed with crabmeat, lobster bisque and osso bucco ravioli. It also offers a range of potatoes and vegetables as side dishes. For dessert, creme brulee, white chocolate bread pudding, cheesecake, fresh seasonal berries with sweet cream sauce and other selections are available.

FINANCIAL RATIOS  of  Ruth's Hospitality Group, Inc. (RUTH)

Valuation Ratios
P/E Ratio 23.1
Price to Sales 1.8
Price to Book 8.8
Price to Tangible Book
Price to Cash Flow 12.4
Price to Free Cash Flow 23.1
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 30%
Cap. Spend. - 3 Yr. Gr. Rate 11.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 31.6%
Total Debt to Equity 31.6%
Interest Coverage 47
Management Effectiveness
Return On Assets 15.1%
Ret/ On Assets - 3 Yr. Avg. 12.3%
Return On Total Capital 29.7%
Ret/ On T. Cap. - 3 Yr. Avg. 24.2%
Return On Equity 33.9%
Return On Equity - 3 Yr. Avg. 27%
Asset Turnover 1.9
Profitability Ratios
Gross Margin 27.5%
Gross Margin - 3 Yr. Avg. 26.4%
EBITDA Margin 15.5%
EBITDA Margin - 3 Yr. Avg. 15.4%
Operating Margin 12.4%
Oper. Margin - 3 Yr. Avg. 11.9%
Pre-Tax Margin 11.9%
Pre-Tax Margin - 3 Yr. Avg. 11.7%
Net Profit Margin 7.8%
Net Profit Margin - 3 Yr. Avg. 6.8%
Effective Tax Rate 32.6%
Eff/ Tax Rate - 3 Yr. Avg. 31.7%
Payout Ratio 30%

RUTH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RUTH stock intrinsic value calculation we used $452 million for the last fiscal year's total revenue generated by Ruth's Hospitality Group, Inc.. The default revenue input number comes from 0001 income statement of Ruth's Hospitality Group, 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 RUTH stock valuation model: a) initial revenue growth rate of 2.5% 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 RUTH is calculated based on our internal credit rating of Ruth's Hospitality Group, 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 Ruth's Hospitality Group, 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 RUTH stock the variable cost ratio is equal to 87.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5 million in the base year in the intrinsic value calculation for RUTH 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 Ruth's Hospitality Group, Inc..

Corporate tax rate of 27% is the nominal tax rate for Ruth's Hospitality Group, 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 RUTH 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 RUTH are equal to 35.9%.

Life of production assets of 11.1 years is the average useful life of capital assets used in Ruth's Hospitality Group, 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 RUTH is equal to -14.2%. 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 - $90.132 million for Ruth's Hospitality Group, 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 30.341 million for Ruth's Hospitality Group, 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 Ruth's Hospitality Group, Inc. at the current share price and the inputted number of shares is $0.7 billion.

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