Sally Beauty Holdings / Realistic / No-Growth

Internal Rate of Return of Stock using P/S Ratios (Model IRR‑STK‑PS)

@SimSim 5 months ago 23 Views

This model simulates the Internal Rate of Return (IRR) of a company to long-term shareholders, where the excess cash and all future earnings are assumed to be paid out as dividends.

The future share-prices are simulated using P/S (Price-To-Sales) ratios so the earnings can be zero or negative.

The IRR is the discount rate that makes the Present Value of the future dividends and share-price equal to the current share-price. The IRR models are somewhat finicky with regard to the user-input and cannot always find the IRR.

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Keywords: DEMO SBH

  • Earnings simulated from historical Net Profit Margin (2011-2023) and recent sales (2022-2023).
  • Earnings lowered by USD 100m for first 4 years to repay debt.
  • P/S ratio low in years 1-4 (2017-2023), full range in years 5-10 (2011-2023).

2024-05-16T10:02:02.917026 image/svg+xml Matplotlib v3.8.4, https://matplotlib.org/ -5% -2.5% 0% 2.5% 5% Tax-Rate Dividends -5% -2.5% 0% 2.5% 5% Tax-Rate Cap-Gains
  • This plot shows the probability distributions that are common for all simulation years.
2024-05-16T10:02:09.496121 image/svg+xml Matplotlib v3.8.4, https://matplotlib.org/ 0.5 1 1.5 Year 1 P/S Ratio 3.8b 3.85b 3.9b Sales 100m 200m 300m Earnings Year 2 (Same as previous) (Same as previous) Year 3 (Same as previous) (Same as previous) Year 4 (Same as previous) (Same as previous) Year 5 (Same as previous) 0.5 1 1.5 Year 6 3.8b 3.85b 3.9b (Same as previous) 100m 200m 300m (Same as previous)
  • This plot shows the probability distributions for individual simulation years.
  • The dashed blue lines show the median P/S ratios calculated from the simulated Sales in each year, and the current Market-Cap (current share-price X number of shares) minus the Excess Cash. This lets you easily see if there is likely going to be a future loss or gain from re-valuation of the stock's P/S ratio.
2024-05-16T10:01:59.632788 image/svg+xml Matplotlib v3.8.4, https://matplotlib.org/ 1 2 3 4 5 6 7 8 9 10 Future Year -25% 0% 25% 50% 75% 100% 125% 150% 175% Internal Rate of Return (IRR) SimSim.Run - May 16-2024 (UTC) Sally Beauty Holdings / Realistic / No-Growth Internal Rate of Return of Stock using P/S Ratios (Model IRR-STK-PS) 2.8% 0.8% <0.1% <0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
  • This violin-plot shows the Internal Rate of Return (IRR) for investment periods between 1-10 years, when the current share-price is USD 10.
  • Out of 100k simulation trials >99.9% had valid results. Outliers >9.2 IQR are removed.
  • If there are losses in some simulations, then the red boxes on the bottom show the probability of loss for each future year.
2024-05-16T10:02:01.402106 image/svg+xml Matplotlib v3.8.4, https://matplotlib.org/ 6 8 10 12 14 Current Share-Price 0% 50% 100% 150% 200% Internal Rate of Return (IRR) SimSim.Run - May 16-2024 (UTC) Sally Beauty Holdings / Realistic / No-Growth Internal Rate of Return of Stock using P/S Ratios (Model IRR-STK-PS) Prob Loss: 0.4%
  • This 2D histogram shows how different share-prices would impact the Internal Rate of Return (IRR) for all investment periods between 1-10 years.
  • Out of 100k simulation trials 99.1% had valid results. Outliers >9.2 IQR are removed.
  • The x-axis shows a range of share-prices around the current share-price of USD 10, which is marked as a dashed blue line.
  • The red box at the bottom shows the probability of loss if the current share-price is USD 10, when considering all investment periods between 1-10 years.