Ally,
You have chosen to make a comparison with an AMERICAN company. As you very well know, in Canada e-commerce has yet to catch on in a significant fashion.
Your price-to-sales valuation measure, while convenient, is very arbitrary. You seem to chose whatever multiple will achieve your target price. You call 5x sales a conservative multiple, while from what limited information I have seen, I find it quite aggressive.
We don't know what the growth rate has been, nor what it will be. We don't know how much money will be needed for marketing and promotion. I posted recently some figures for CDNOW, which show increasing losses due to the marketing and promotion required. Sales of CDs is a low margin business with lots of competition as the barriers to entry appear to be low from a technology viewpoint. Will the already low profits turn to losses? Quite possible.
You mention a growth business. From what I have been reading recently, selling CDs is far from being a growth industry. SBX/CDPlus better find something else profitable to sell, and I would be surprised if they don't.
The number of shares outstanding will be closer to 300,000,000 due to the $10mm financing announced. If one were to apply your price targets of $1.10 and $2.20, this would result in a market cap of $330,000,000 and $660,000,000 respectively. In the USA, there are probably enough fools to go out and buy this type of folly. In Canada, I doubt it, but you never know. In fact, I very much hope that there will be a short term blip up to get out!
The move to the SBX shell is likely a good one for CDPlus, but less so for the SBX shareholders.
With respect to future deals, we will just have to wait and see just what they are. If they are only, the me-too and new-portals type of releases, then nothing to get very excited about.
PS. On the StockHouse site, a poster presented yet another valuation approach, which yielded a value of $0.35. Take a look. |
