Here is a Cdn company that is still flying under the radar.... for now. Diversaflow on the tsx venture exchange (DVF).
DVF eps came in at 2 cents for the 3rd quarter and I am expecting very similar numbers in Q4. No surprises and the stock price probably won't move much on q4 numbers.
Q1 numbers are a whole different story. Read the news releases on September sales and you will find one that talks about the largest sales week in the company's history. One million in one week. Quite amazing when you consider their total estimated sales for this year will be 7 million. All of those sales should be delivered in Q1 which gives Q1 a fantastic jump start. Follow through with the estimates here: If Q1 numbers have one week with 1 million in sales and all of the other quarters are average (about 150,000 per week), Q1 sales will look something like this:
1 million + ($150,000 X 12 weeks) = 2.8 million in revenues for Q1
In Q3 the company had revenues of 1.95 million and profits of 2 cents per share. Given the 43% increase in revenue, a 43% increase in eps would be expected which is about 2.8 cents per share. Annualize the first quarter and you get 11.2 cents for the year (2005). Give it a conservative multiple of 8 and we get fair market value of 90 cents per share in 2005.
If you dig a little deeper the numbers look even better. Because many of DVFs costs are more of less fixed (rent, hydro, executive salaries) and the more work they do the more economies of scale bring costs down a more accurate way of predicting eps is this.
If you look back at DVFs financials, you will find they break even at around 1.4 million in quarterly revenue. After that point they make profit of about 30% on any additional sales they make. If the company has revenues of 2.8 million as indicated above, the break even on the first 1.4 million and they make a profit of 30% on the second 1.4 million. 30% of 1.4 million works out to a 420,000 profit or earnings per share of about 4.5 cents for Q1. Annualize 4.5 cents and you get 18 cents for the year. Slap on a PE of 8 and you get 1.44 per share by the end of fiscal 2005. Shortly after Q1 is released, I beleive people will annualize that Q1 number and assign a multiple of 6 times expected eps which would yield a current value (as of February 15, 2005) of $1.08 per share.
My analysis above doesn't take into account any phenomenal growth rates in Q1. I've actually assumed revenues would remain flat even (with the exception of one week when we know for a fact sales were over 1 million). Considering that revenues in 2004 have grown over 100% over 2003, I am actually being overly conservative with my analysis of Q1.
Realistically dvf should hit a dollar by the end of february. If people see the true potential of the company and assign a PE of 10-15 times because of the fantastic growth rate, we could see 1.80 - 2.70 per share in a very short time. Either way, a fairly low risk double in in 3 months with the chance for 300-500% on today's prices looks like a decent investment to pick up at current prices.
Just my opinion, you should always get proffessional advice before making and investment, should not be construed as a recommendation to buy ..... blah blah blah |
