Investment thesis reviewAs an investor in Ceapro for the past 3 years or so I've been through the ringer like most of you. So, I decided to reevaluate and do another deep dive into Ceapro.
I'll go into more info below, but as a quick summary I believe todays price is the floor assuming the company divested from its new R&D, kept its current staff and sales and marketing budgets and did not grow sales from the recent average of $3,500,000/quarter with a P/E multiple of 15. You can argue 15x would be high for a no growth company, so a 10x multiple would give a share price of ~$0.22.
That's assuming no growth, quarterly R&D of ~$400,000 as in 2017, expensive management and staff, etc., in which case, costs could be trimmed in that scenario.
In 2019, we are more or less at the same sales volume as in 2017 before management decided to invest heavily in new potential products and a "10X" fancy new plant. The plant expenditures are more or less behind us, except for investment in new PGX equipment and maybe equipment for the food focused plant. Most of todays R&D seems to be in finding new uses for PGX and current studies. However, we are now over the major hump of transitioning plants and I believe there is a large runway for PGX in multiple different forms, as we've all noted with irons in the fire.
The way I look at it, is this company has the ability to make major strides in growth from multiple different angles, and if all of those are a failure, we are pretty much risking very little at these prices, since this company has valuable products that are currently cash flow positive and have success with major players for many years. The base business is proven.
In the meantime, they have paid down LTD to effectively $0 and are back to cash flow positive for the past two quarters. This provides options for them to finance new PGX growth with either debt or cash without having to dilute shareholders with another equity raise. It also provides room to breathe while they ideally try to partner with larger, more experience players to make the PGX segment a reality much sooner.
3 years is a long time for our cash to sit losing money in CZO, but I think these prices (and maybe lower due to tax loss selling or more frustration) provide a fantastic opportunity to load up on a company with lots of upside and not a lot of downside.
I understand why people are abandoning this investment and honestly I cannot blame you, but I believe this next stage in CZO will be where the shareholders will profit. For those interested, I believe the next couple of months is the opportunity to get in at the floor.
This is obviously just my opinion and you never know how low the market will take us, but as long as this narrative stays in contact, I will be a shareholder.
Best of luck to all heading into 2020.