And the answer is...NON-LINEAR GROWTH.
(I was going to say EXPONENTIAL but did not want to rouse all the latent mathematicians lurking out there.)
There are a wide universe of equities in growth markets that one could make the same arguments for on valuation, and enough fear in the market right now that one could easily start believing his own arguments. And why so focused on just this one equity and some of its shareholders? ;-)
Care to rethink and restate your arguments in light of the FY2002 revenue projection in that very same CIBC report? It would seem the argument quickly becomes far less compelling.
Although it will not be immediately evident in the financials, the fundamentals underlying the company continue to strengthen at a rapid pace. It is hard to deny Valence is at a very crucial juncture in the transition from R&D to commercial mass production. The guidance provided in the next CC must be carefully considered and objectively weighed.
From the 10,000 foot view, the overriding question has never really changed: "Can the company deliver on its promises?"
Undeniably the company had been on the verge of commercial production for some time, but encountered some unanticipated difficulties and had to sequentially revise projections in the late 1990's timeframe. (Some point to this as evidence company management cannot deliver on its promises.)
For me this question was answered in the affirmative as soon as Valence was able to announce acceptance of a commercial PO, further reinforced by shipping to that same PO and procuring several other PO's along the way. Either you trust him or you don't, but Lev said Valence would not announce any orders before the product had been fully tested by the OEM, to avoid a repeat of the mid-1990's Motorola debacle. The company continues to be very conservative with its projections into the public record, as evidenced especially by the SEC filings.
So if the company continues to deliver on its promises since turning the corner on commercial production and can lock onto the projected growth curve, higher multiples are justifiable and will be afforded. Valence remains a speculative investment because it is still in the process of turning fairly large expectations into reality. But certainly if one merely waits to see break even, much less positive earnings, in the financials, it will be too late. Regards. |
