Here is an interesting analysis from a RB WAVC board. If these projections are anywhere near correct, this stock should be accumulated IMHO. As a reference see:
groome.com for their analysts report.
By: bwelb
Reply To: None Monday, 24 Apr 2000 at 11:34 AM EDT
Post # of 23873
My New "Sophisticated" Price Targets
In order to calculate realistic price targets, I sat down and looked at what should go into those.
If a company always increases revenues at 25% per year, what price to sales ratio would represent a fair value for the stock? Conservatively, a price to sales ratio of 5 would probably work. If the company has margins of 20%, then the corresponding price to earnings ratio would be approximately 25. As you can see, this is a conservative target ratio. I think most of us would be willing to pay more than 25 times earnings for a company that grows 25% every year.
So what do you do with a startup like WaveRider? In the past, we have all thrown price to sales ratios into the wind - 100, 200, 300. But what I think we might should do is to look at the forward growth and calculate backwards. In other words, if revenues are supposed to increase 500% on average the next couple of years, then we should be willing pay 100 times sales (~500 times earnings).
As revenues start to slow down in 2002/3/4, etc., the multiple then should also start come down. So what I have done is to take estimated revenue growth, generate conservative price to sales targets, and then let the price targets fall out.
Assumptions:
* Groome Capital Revenue Estimates Through 2004
* Fair value for a stock is a price to sales ratio of 1/5 its revenue growth rate (roughly equal to its growth rate in price to earnings terms). In other words, if a company's revenues grow 50% a year, we should all be willing to pay 10 times sales, or roughly 50 times earnings.
1999:
Revenue: $1,802,000
Growth Rate: 775%
Price To Sales Ratio Target: 155
Target Stock Price: $5.59
2000:
Revenue: $20,440,000
Growth Rate: 1030%
Price To Sales Ratio Target: 206
Target Stock Price: $84.22
2001:
Revenue: $101,940,000
Growth Rate: 400%
Price To Sales Ratio Target: 80
Target Stock Price: $163.11
2002:
Revenue: $239,450,000
Growth Rate: 135%
Price To Sales Ratio Target: 27
Target Stock Price: $129.31
2003:
Revenue: $419,050,000
Growth Rate: 75%
Price To Sales Ratio Target: 15
Target Stock Price: $125.72
2004:
Revenue: $628,575,000
Growth Rate: 50%
Price To Sales Ratio Target: 10
Target Stock Price: $125.72
I would like to conclude with two comments:
1) This assumes Groome Capital revenue estimates.
2) These price targets assume conservative evaluation methods.
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