Brad and Everyone,
A word of caution, that analysis was based on projections. Assumptions that all goes well, and this FNET IPO comes to fruitation.
My personal opinion is that the minute the world finds out that the voice server works, you will see a flurry of offers come in. I expect a buyout prior to any IPO, which would effect the numbers I laid out dramatically.
In laying out those numbers, everyone must realize that there is no way of knowing what the actual IPO is going to be, or the cost of some the equipment, etc., etc. So, what I always do when looking at something like this is kick out half of what someone is saying, then halve it again. So if that is the case, then that would put FTEL at a valuation of around 15.00 and DCIC at around 10.00. Now, those two numbers would reflect an IPO price of $3.50 repectfully. Seems a little low, doesn't it? But at least you now have a range that I think is very realistic, and as we get more details on pricing, etc., I will be able to hone these figures in on target.
Either way, I think you can agree that both stocks look woefully undervalued when compared to potential. Just remember though, under normal circumstances the street places valuation based on trailing earnings, in that case we are overvalued. But, these aren't normal circumstances, and with each press release, we get closer to justifying the risk associated with such projected valuations. So, what I always do in a case like this is look at the risk vs. reward ratio, and as long as reward outpaces risk by a factor of 4:1 then I feel there is justification in being vested. My minimum is 3:1 depending on how well I like the story and how probable the outcome.
Lets look at each from that standpoint. We will use the minimum projected valuations. What I like about this is that 2 out of the three numbers are actuals, so it gives a better perspective on which to base a decision. With that said, lets run the numbers on FTEL
Target 15.00 Bottom .88
Price -1.69 1.69
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13.31 divided by .86 = 15:1
15 to 1 upside reward to downside risk factor is well worth the gamble, and in the back of my head, I think even if I cut the numbers in half again, it comes out to 8:1 which is still twice what I use as justification (4:1). This is also suggesting undervaluation at these levels.
You can do the same thing with DCIC, only because of lack of historical trading patterns, I used .60 (PP price) + 15% which equals
.69 as the bottom. Here's the numbers.
Target 10.00 Bottom .69
price 2.56 2.56
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7.44 1.87 = 4:1
At 4:1 my basis of justification is realized, therefore telling me that we are fairly valued at present. Keep in mind though, that we are using the minimum projections as our basis of calculation, so this is being ultra conservative on both companies.
As more news comes out, digest it and try to judge how much closer it puts us to the higher numbers becoming a reality. Then move your target higher and adjust the ratios accordingly.
Many of you may think this is all a bunch of phooey, but I can tell you I have used this type of formulation for years when dealing with OTC-BB stocks and it is the best guide, I know. That does not mean that everything is cast in concrete, it's just a guide. I use it, to try an keep things in perspective. For example, DCIC using this formulation, shows a fair minimum value of 2.50, compared to risk factor of 4:1, but as I said above 3:1 may apply, and that puts us at
a price of $3.34, now I have a trading range on which to base my investment decisions. As more news comes out, the story looks better, the valuations are upped, I can adjust accordingly, but at least I have a basis on which to make a decision.
FTEL on the other hand would be valued at $3.50 to $5.00, using 4:1 and 3:1 respectfully.
Hope this all helps.
RB |
