Looking at Valuation Following Great Numbers…After the market has had a day to digest the numbers I like to take a look at where we stand now that especially now that I am a shareholder;
Technically the chart looks great hit a new 52 week high breaking out of the previous consolidation range, no real resistance until we get to the 3s.
Fundamentally the business is improving every quarter and now that all the non-core business units are divested in think now is a good time to see the true profitability of the business model.
If you look at this stock still trading at 0.86x BV clearly the street didn’t believe in the underlying income generation ability of all the business units. Now that Ovivo has divested these non-core assets it should trade back at a premium to book as it has demonstrated the profitability of its core business the last 3 Qs. Trading at book value alone puts the SP at 3.10 and if you put a premium to 1.5x BV it puts it at 4.65 or more than a double and right back to around the 2014 highs.
So Management guided up to 350M in revenue and I am going to combine that with an EBITDA margin of 7.5%. Which feel that are conservative now that they have spun out all non-core assets, the debt level continues to drop and margins continue to improve. So this year they will generate 26.25M in EBITDA. So at this rate they are only trading at a little over 4x this year EBITDA which is way too cheap for a company that just grew EBITDA 42% YoY. Also given the fact that net debt is virtually nil even if you adjust for EV you still get an EV/EBITDA value of 4x. If you assign a valuation of 6x -10x EV/EBITDA to Ovivo which I feel is reasonable you get a range for the stock of 3.75 – 6.25 SP.
No matter how you slice it this thing is cheap as sentiment shifts like today the valuation should adjust back to a more reasonable range.
You are supposed to buy low and sell high after all…