Paul:
I believe I was fair and respectful to Mr. Travis. Now lets be fair to Goldfinger's point of view and look at the bear case.
The company is currently valued (market cap) of $286 million. ($13 * 21MM shares).
You buy the entire company out at the current share price (you pay zero premium for taking out the closely held shares). You expect to hold it for 20 years (life of the IPR w/o extension). You expect to make a 15% return on your investment compounded annually (rather modest expectation in this market environment).
Under that scenario, your cumulative net income (earnings) would have to be in the range of $4.7 billion dollars. ($286*((1+.15)^20). Assuming zero (0) debt service, net royalties before tax would be approximately 7.2 billion dollars at a 35% tax rate ($4.7/.65). Assuming zero (0) operating expenses, gross sales of products using the IPR would be approximately $144 billion dollars at a 5% royalty rate on sales (7.2/.05). Take the gross sales, pick any average wholesale price per unit, and calculate how many AENG-based engines must be sold. Lets say $500. Well that equals 288 million engines.
Some bet long, others short. Those currently betting short are wagering that (1) the IPR will not generate this royalty stream (2) management has not demonstrated it has the qualifications necessary to harvest this revenue stream (c) both.
This is an extremely simplistic example, lacking any kind of detail. You could argue that the IPR will last longer than 20 years, which would require additional going concern value and a host of other issues. OTOH, those numbers reflect zero expense, no R&D, no discussion of competition, alternatives or improvements to the current state of the art. IMO, the size of the numbers provides some idea of the task at hand to justify the current stock price.
ww |
