Post by
nozzpack on Jul 08, 2021 8:37am
Market Cap Valuation versus Debt Paydown Rate
Market cap responds to more than debt overhang and a proper analyses would be a multiplicative approach.
A modelling approach would suggest a sigmoid curve, with cash replacing debt once debt is paid off.
But, sometimes for some stocks a simple analyses of Market cap versus debt paydown is instructive.
It can for example inform you of the inflexion point at which the residual debt and its paydown rate ( debt less Ebitda ) causes valuation to go temporarily parabolic.
Such is the case with DCM.
One year ago, entering Q2 with a debt of $82 million, its market cap was just $12 m.
One year later with debt reduced by half to $41 million , our market cap has increased 4-5 fold.
I am sure a few analysts must have examined such a modelling approach to debt dependent paydown effects on the valuation multiple, but I have yet to see one.
In the case of DCM, you might have added more at the curve inflexion point.
Going forward, such an empirical approach predicts that future increases in market cap will exceed that of debt paydown rate by several multiples.
With a fair value in excess of $8 at zero debt, buying now will be very advantageous
Comment by
ariesleaf on Jul 08, 2021 10:30am
Target price for DCM One To five years . $2.80 -$5.00.