Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Shutterstock Inc (SSTK) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Shutterstock, Inc. (Shutterstock) is a global provider of creative content and commercial music. The Company’s creative content includes digital imagery, which consists of licensed photographs, vectors, illustrations and video clips that customers use in their visual communications, such as Websites, digital and print marketing materials, corporate communications, books, publications and video content. Its commercial music consists of music tracks and sound, and is used to complement digital imagery. It also offers digital asset management services through WebDAM, its cloud-based digital asset management platform. This service provides tools for customers to manage creative content and brand management assets. Its global marketplace brings together users and contributors of creative content from around the world by providing a searchable collection of content. Its content offerings include Shutterstock, Bigstock, Offset, Shutterstock Music and Shutterstock Editorial.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of SSTK – February 2017
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $1,806,294,622 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.74 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 7000.00% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 63.33 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 6.30 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 1.74 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.00 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.81 |
| MG Growth Estimate | -0.71% |
| MG Value | $5.76 |
| Opinion | Overvalued |
| MG Grade | D |
| MG Value based on 3% Growth | $11.81 |
| MG Value based on 0% Growth | $6.92 |
| Market Implied Growth Rate | 27.41% |
| Current Price | $51.59 |
| % of Intrinsic Value | 895.24% |
Shutterstock Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.86 in 2012 to an estimated $0.81 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 27.41% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Shutterstock Inc revealed the company was trading above its Graham Number of $13.57. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 63.33, which was below the industry average of 158.7, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $3.85.
Shutterstock Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $3.85 |
| Graham Number | $13.57 |
| PEmg | 63.33 |
| Current Ratio | 1.74 |
| PB Ratio | 6.30 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
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| ModernGraham tagged articles | Morningstar |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2016 |
| Total Current Assets | $351,905,000 |
| Total Current Liabilities | $202,822,000 |
| Long-Term Debt | $0 |
| Total Assets | $507,333,000 |
| Intangible Assets | $81,286,000 |
| Total Liabilities | $213,988,000 |
| Shares Outstanding (Diluted Average) | 35,824,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $0.98 |
| Dec2015 | $0.54 |
| Dec2014 | $0.61 |
| Dec2013 | $0.77 |
| Dec2012 | $1.79 |
| Dec2011 | $0.64 |
| Dec2010 | $0.44 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.81 |
| Dec2015 | $0.78 |
| Dec2014 | $0.88 |
| Dec2013 | $0.92 |
| Dec2012 | $0.86 |
| Dec2011 | $0.33 |
| Dec2010 | $0.15 |
Recommended Reading:
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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