The current market cap is 245.4M corresponding to a stock price of 50.48. Cash on the balance sheet has decreased due to the acquisition of ICRC, but the company still has no debt. With an enterprise value of 244.1M and TTM revenue of 485.9M, the enterprise-value-to-revenue ratio stands at .5. Diluted EPS (on a TTM basis) is 2.16, giving the stock a PE of 23.
Based on the results for the first half of 2007, the owner earnings run rate for 2007 is 10.7M. Although an estimate, this can be regarded as a somewhat conservative figure since a more accurate picture of the cash generation potential of the company might be obtained by adding back the portion of capex allocated to growth. With this level of owner earnings we have an EV/OE ratio of 23. Using this owner earnings figure, along with a growth phase of five years, a terminal growth rate of 3%, and an 11% discount rate, we have the following estimations of fair value:
|Growth Rate||Fair Value|
Baked into the current price is an assumption of 17% growth.
The stock is not nearly as cheap as it was three months ago when the market, or at least some folks therein, began to notice in VSEC an undervalued fast-growing micro cap company. The 121% rise in price which has occurred since then has brought the price to something near, but perhaps not quite at, fair value.
Disclosure: Author is long VSEC