Analyst Estimate Changes vs. InitiationI took a look at some of the initiation reports on THNK published by analysts to see what had changed from their 2023 estimates and also how it compares to the companies updated guidance run-rate exiting 2022. I'll spare the details by generally these are my observations:
1. The average out-of-the gate target pric on THNK was $6.00 or thereabouts. which roughly translated into an EV/S multiple of 4.0x 2023 numbers and an EV/EBITDA of 30x. Those are fairly lofty valuation metrics in today's markets so adjusting for something more reasonable in the current environment (e.g. 1.5x trough to 2.0x more normalized EV/S multiple. I also looked at EV/EBITDA multiples) would have produced a target price of $2.50 on the low end to $3.20 based on the original estimates for the company. In other words, the decline from $6.00 to $2.50/$3.20 is all due to valuation contraction in the markets.
2. Next I looked at how estimates changed based on updates from the company and guidance and a few things jump out. First EBITDA estimates for 2023 haven't really changed that much at around $8.1M for 2023. What has changed is the amount of revenue (higher now), number of shares (higher now), Cash on balance sheet (lower by about $10M) and level of indebtedness (higher now). So essentially more dilution for shareholders and lower forecasted margins albeit off of a higher revenu base. Net, net the new estimates at current market multiples suggest a $1.50 to $2.25 target price.
So based on the reasoning above the decline in THNK's target price from what investors thought at the time of the IPO can be roughly explained as 75% due to market forces and 25% due to declining expectations of corporate fundamentals. That tells me that when markets recover (eventually) we could see a lot of positive movement on the shareprice providing that management delivers on current expected fundamentals.