Target price : $9.60 ?Do you find it hard to estimate at what price this stock will be trading in a year ? I have done my estimates before accumulating a lot of shares and I came with a number that I really liked. However, I just wanted your opinions or estimates to compare my number with yours just to ensure that I am not too confident. If you are able to explain your estimates for your target price, it would be great =).
So I will go first.
During 2009, the TSX increase was about 31% compared with a 82% for the TSX-V, which is about 2.7 times higher. Some analysts (including UBS) think that the TSX will be trading at 13,500 in a year, which is roughly an increase of 20% compared with current points. Hence, if the 2.7 ratio is constant, we would see an increase of 54% in the TSX-V. The TSX-V was trading at 1275 at the end of the last quarter. If the 54% increase is accurate, the TSX-V will be trading around 2225 in a year. That would be an increase of 75% compared with the 1275 points as at September 30th, 2009 (the date of the last financial report). Here I am using the TSX-V as reference because as you know, most of PNP's investments are on the TSX-V. But here, I won't simply use that 75% increase to calculate the future book value of PNP because if we are investing in that company, it is because we strongly believe that the management team can beat the TSX-V and there is also the fact that PNP is not buying their shares and warrants on the public market, so it is easier for them to get discounts. In the last 3 quarters, the TSX-V increased by 18.6%, 15.5%, and 16.8% respectively. Pinetree's book value has increased by 17.3%, 22.4%, and 25.1% which is in average 1.3 times higher than the increase of the TSX-V. If we apply that 1.3 ratio to the 75% mentionned above, there would be an increase of 97.5% in Pinetree's book value. Therefore, PNP's book value would be approximately $4.80 at the end of the third quarter of 2010. Many analysts say that banks should be trading at 1.5x their book value. Well, should that ratio be applied to evaluate Pinetree ? I doubt it. Pinetree's assets have a way better return on investment than bank's assets. So, which ratio should we use ? 2x ? 3x ? I don't know. I don't know any company that we can compare with Pinetree. So, to reflect the fact they Pinetree's assets have a better ROI than average banks, I would use 2x. All that being said, my target price is $9.60. Is it reasonnable ? I don't know, it seems to be really high, even too optimistic, but time will tell us if I am wrong.
I know that my analysis has plenty of weaknesses, but with current market, it is really hard to do estimates and sometimes the ratios don't seem to be reasonable. However, we all know that the NAV is increasing quarter after quarter and that the CEO has been buying a lot of shares lately. That could be another argument to support that huge increase in the share price. So, do you guys want to share your target price ?