Originally Posted by
Whipmoney
Basically my argument is that the Price-to-Sales (i.e. Market Cap to Revenue) ratio is far too high at 25,000+. Obviously this is due to a low denominator (i.e. sales) which if all goes well should improve relatively rapidly and which will invariably improve the ratio.
That being said however I still think this ratio is far too high. I note that several posters have mentioned that this will be $2-$3 stock in coming years, some say $5 and somebody even mentioned $10, and therefore the logic of their argument is along the lines of "why quibble over a few cents when it will become a few dollars".
Sure on the face of things this makes sense. $0.90, $1.10, $1.20 or $1.45.. all of them are a good buy price considering the stock could be $3 in only a year or two. Seems like lots of upside and therefore lots of reward.
What they haven't considered is the risk in relation to the reward. The risks aren't non-existent. Bio-tech companies rise and fall all the time and if for some reason there's a hitch with the science (as in the case of Matritech's NMP22 test) then the company could collapse overnight. Aside from product risk there is market risk (inability to commercialise, or inability to get the insurers to price the test at an acceptable gross margin). There's competitor risk, technological obsolescence (i.e. a superior bio-marker/test being delivered to the market).
So with regard to PEB (my personal view) is that the market is pricing in far too much of the foward revenue (growth expectation) and therefore the reward isn't yet commensurate enough for the risks. I will look to buy-in if there is another dip however.
DISC: sold at around $1.50.