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Microcap & Penny Stocks : EXSO -- Consolidated Eco-Systems (Exsorbet Industries)
EXSO 0.00010000.0%Mar 7 3:00 PM EST
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To: Zeev Hed who wrote (540)7/26/1997 2:13:00 AM
From: Razorbak   of 5015
 
Casino Gambling With Better-than-House Odds?

To All: I did some further analysis this afternoon, trying to reach some personal conclusions regarding the attractiveness of an investment in EXSO at today's price in light of the great uncertainty surrounding equity dilution. Thought I might share it with everyone on the thread.

Here's my thought process...

First, I assumed the following: (1) expected profit level of $2.5 MM/yr on $42 MM revenue, (2) 50 MM shares outstanding (the maximum currently authorized), and (3) a very conservative PE ratio of 10X for the industry.

These assumptions gave me an earnings forecast of $0.05/share ($2.5 MM earnings / 50 MM shares), and a reasonable potential stock price of $0.50/share ($0.05/share X 10 PE multiple), with a potential upside of at least 5 times the purchase price at today's ask ($0.50 / $0.09375 = 5.33X or 533% increase). Maximum downside = $0.09375/share (current investment); potential upside = $0.50/share.

Then I looked at the biggest uncertainty in the equation -- the potential for further equity dilution -- and asked myself if it made any sense to invest at today's price in light of this great uncertainty.

To answer this question, I analyzed the problem mathematically and solved for the minimum probability of additional shares being authorized that would actually yield a breakeven result on the investment (i.e., no gain / no loss). Using simple algebra, I created a formula for the breakeven case and assigned a variable (P) for the breakeven probability.

For example:

0.50 X P > 0.09375

where P is the probability of the company not having to issue additional shares above the current authorized limit.

Then I solved for P:

P > 0.09375 / 0.50

P > 19%

This analysis suggests that, in order to justify an investment decision at today's price, you must be confident that the probability of the company not having to issue any additional equity shares must be greater than 19% (a 1-in-5 chance).

Well, what do you guys think? Comments, thoughts, and flames are all welcome.

Razor
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