>Difficult to say where this is going and over which period of time. Clearly the speculators' expectations were much too high. Even at this price, the market cap is close to $100mm CDN. For a small e-commerce/conventional company with only $1mm of profits, this is very high.<
Syncrude,
I've been reading your posts and views on this case, and wish to present the points below:
1. You are basing your evaluation of an e-commerce stock on an outdated old fashion fundamental analysis. The situation here is not "conventional" just like AOL is not a "conventional" isp provider. The business boundaries of an e-commerce stock is unlimited. The demarcation line between an internet stock and an e-commerce stock is not as clear cut and as definitive as you have presented. In fact, the opposite may be more accurate... the lines between a pure internet stock, a pure e-commerce stock, and a bricks and mortar stock with e-commerce, are becoming more blurr each day, and will eventually become indistinguisable.
2. The valuation of an e-commerce stock like this one should be based on price/sales and not on net income as you have stated. Valuation of CDPLUS is more valid if compared to CDNOW, which is currently selling at US$20, or a price to sales ratio of 5. At the height of its stock price CDNOW was selling in excess of price to sales of 10.
3. Further, CDPLUS (see the financial statements) has positive EBITDA, and is profitable. CDNOW, on the other hand, has negative EBITDA, and is not profitable.
What we have here is a private, profitable, and growth oriented bricks and mortar/plus e-commerce music distribution company buying into a shell (SBX) so as to get an immediate listing on the TSE, together with an immediate exposure and following of institutional and retail vestors. This is a coup for CDPLUS, and its shareholders. CDPLUS can be compared to Chapters... a bricks and mortar business with a growing e-commerce business. And not limited, by any stretch of the imagination, just to the music internet commerce industry.
When this deal with SBX closes, it becomes instantly a public company trading on a major Canadian stock exchange market. What else can a internet oriented growth investor wish for, besides entering in at the right price.
Well, lets look at the valuation issue. SBX should conservatively be valued at least at the same price to sales multiple as CDNOW, say 5. SBX will have $60 mill in sales this year, with 270 million shares outstanding. This translates to a stock price of $1.10. If the company continues to grow aggressively, it is not a stretch of the imagination for a ratio of 10 price to sales multiple, which translates to a $2.20 stock price.
Now, should there be future news releases of new acquisitions and expansion into more e-commerce businesses, don't you think the stock price will climb higher? IMO, compared to other internet commerce situations like GEM, BID etc. SBX at 50 cents is a steal! |
