How do you value biotech companies with very little information ?
Guesswork really but nonetheless I have had a go...
2023 full year, (hopefully unless it s a little later with more delays caused by Covid) will be their year when at least in theory everything is imported, installed, built and up and running.
Craig's plan is to hopefully double 2020 sales by 2023. If this plan is not delayed and assuming everything works out then that might lead to a doubling of 2020 profit by 2023 which on the expanded number of shares on issue works out to be almost exactly 3 cents per share.
One idea to value the company which, (in the absence of any real data to the contrary), I have used to value PAZ shares for a possible reentry is to choose an appropriate PE multiple for those possible 3 cps earnings in 2023 and come up with a theoretical valuation in April 2024 when the 2023 result is announced and then discount that back to its value today using a discount rate that's appropriate given there are no dividends, the biotech sector is high risk and there is very limited liquidity.
I won't post the answer that gave me today because it would be insensitive to shareholders and its my own methodology in terms of the PE, the discount rate and the reasons for those numbers. Suffice to say its materially south of 71 cents otherwise I'd be buying the shares on offer at that price or bidding somewhat lower. Provided people have heaps of patience (not my strong suit), they should do okay but biotech companies are notoriously high risk and we are in unchartered waters with this pandemic and its duration. Just a few random thoughts I had on this one today. My ponderings are little more than somewhat educated guesswork, time will tell.
P.S. You can get almost any answer you like using my methodology depending on what numbers you choose. For example if you think the correct PE of PAZ in early 2024 when they have announced 3 cps in earnings is 60 then its worth $1.80 in March 2024 and if you use a discount rate of 10% for this being 2 1/2 years hence from here you get $1.80 x .9 x.9 x.95 = $1.24 now.
On the other hand if you think Covid will delay things 6 months and a fair period to make 3 cps is three years hence from now and a fair PE is 27 and your discount rate for the risks mentioned is 17% per annum then the fair value becomes 27 x 3 = 81 cents x 0.83 x 0.83 x 0.83 = 46.3 cents now.
Conclusion - People have to come up with their own numbers and reasons for them. If anyone else has a theory on how to value this company with such incredibly scant information I am all ears like this...yes I know that's a Bassett not a Beagle
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
Huge speculative bubble in the US with many stocks not trading on fundamental's. I won't join in the insanity or the wild speculation with cryptocurrency either, (not that these two are the same), I just mention to illustrate the point that just because a practice is widespread at present doesn't make it right or mean it fits with my investment methodology.
I am happy to pay for growth at a fair price and that underscores my thinking right across the board with all investments.
People have to come up with their own way of doing things.
I'll stick to old fashioned ways of doing things that have worked for me, (seem to be doing okay and besides that its too hard to teach an old dog new tricks). For what its worth I was buying 2 years ago at 20 cents when the forward PE was in the mid 20's when it was growing faster than it is on average forecast to between now and 2023. 20 cents was a fantastic bargain I have to say but I also think 95 cents recently was a clear sell. Maybe the answer now is somewhere very close to the middle of those two figures
Last edited by Beagle; 17-10-2021 at 04:59 PM.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
Huge speculative bubble in the US with many stocks not trading on fundamental's. I won't join in the insanity or the wild speculation with cryptocurrency either, (not that these two are the same), I just mention to illustrate the point that just because a practice is widespread at present doesn't make it right or mean it fits with my investment methodology.
I am happy to pay for growth at a fair price and that underscores my thinking right across the board with all investments.
People have to come up with their own way of doing things. For what its worth I was buying 2 years ago at 20 cents when the forward PE was in the mid 20's when it was growing faster than it is on average between now and 2023. 20 cents was a fantastic bargain I have to say but I also think 95 cents was a sell. Maybe the answer now is somewhere very close to the middle of those two figures
I’ll do the snoopy thing
(20 + 95) / 2 gives about 57
So answer now 57 cents
Better not mention that to the guys down the bowling club ….think they bought above that
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Right space/Right place/Right time barring present Covid disruptions with plenty of demand, patience required but potential is huge and you can't value that by using a traditional PE valuation.Couta's gutometer 3 yr forward valuation is $3, take it or leave it.
Right space/Right place/Right time barring present Covid disruptions with plenty of demand, patience required but potential is huge and you can't value that by using a traditional PE valuation.Couta's gutometer 3 yr forward valuation is $3, take it or leave it.
coutal, fingers crossed on the $3-00, if they hit that Ill buy you a dozen bolli champers, let me know where i can deliver it !
I think Pharmazen is one to throw in the bottom drawer for a while. Had a good run on shareprice over an extended period, well underway with their plant expansion - but now has to deliver and put runs on the board.
Challenge is to double turnover, and like Beagle says, presumably double profit, then accordingly to the USX site, 1.8c eps now to 3.6c eps - 39.5 PE now, to potential 19.7 P/E at todays price. This is with increasing electricty pricing (with many rolling off old electricity contracts and I've heard some horror stories), pressure on labour supply and pricing, and also shipping challenges.
Their new initiatives such as DOT and Aiora are great, but B2C marketing is alot different to B2B. Takes time, effort, skill, patience and money - but the payoff is in margin - especially on the capsule business. I envisage this will be cream, if they work out.
I look as a comparison to the only other company I hold on the USX - SFF. Not too dissimilar in market cap, but PE of 3.3 and potentially another very solid result coming.
Good post but please note that there are more shares on issue after the placement earlier this year so a doubling in revenue and net profit by 2023, (if achievable), will lead to eps growing to almost exactly 3.0 cents per share. Choose your PE or for those that think earnings don't matter make up whatever numbers you like...
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
Good post but please note that there are more shares on issue after the placement earlier this year so a doubling in revenue and net profit by 2023, (if achievable), will lead to eps growing to almost exactly 3.0 cents per share. Choose your PE or for those that think earnings don't matter make up whatever numbers you like...
I agree with Sideshow Bob. These are good for the bottom drawer for the next 3-5 years. I am very content with my large holding. As you say Beagle, trying to guess where this will be in 2-4 years time is pretty much a "make up your own numbers" exercise. A bit like it was when I was buying ATM at 18-30c and we had a great discussion about it back then. It was a matter of buying the story, a bit like I feel with PAZ.
How do you value biotech companies with very little information ?
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Originally Posted by Beagle
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