DIVIDENDS!!!!
or
"why the current and future price is irrelevant to long-term investors!"
Because REFR’s operating costs should not increase significantly as royalties grow, the vast majority of royalty income, after “breakeven” revenues are achieved, should flow directly to the Company’s pretax bottom line. With capital spending requirements expected to be minimal going forward, we estimate that, once annual revenues pass the $5 million mark, over 80% of incremental revenues should represent “free cash flow” for the Company.
Longer-term, we believe Research Frontiers’ Board of Directors would consider distributing some of this “free cash flow” to shareholders in the form of cash dividends. As we noted earlier in this report, if we assume that REFR’s licensees are selling a combined $1 billion in SPD products annually within a few years, REFR’s earnings should exceed $2.50 per share. If we further assume that (1) the Company pays out 80% of its earnings in dividends and (2) investors demand an 8% dividend yield, we arrive at a potential stock price of $25. While we cannot predict the time frame within which such a scenario might unfold, or whether it will develop at all, we believe the stock is considerably undervalued relative to REFR’s potential, at its current price of $7.47.
There are approximately 12.8 million shares currently outstanding, and we estimate the public “float” at approximately 9.2 million shares. The stock trades on the Nasdaq National Market under the symbol “REFR”, and trading volume has averaged 40,000 shares per day during the past three months. Management and other insiders beneficially own approximately 19% of the Company (assuming the exercise of outstanding options and warrants), while 22 institutions currently own approximately 9% of the outstanding shares. There is a sizeable “short” interest in REFR (approximately 1.4 million shares as of 9/15/04) that, we believe, represents a pool of prospective buying at some point in the future, if our expectations for the Company prove realistic. |
