Don't understandCould anyone provide me some insight on why the price is so low? Last week there was a couple of million shares that were sold at less than $1. While I don't believe in market efficiency, I would think that the stock price should be somewhat logical and based on the intrinsic value of the underlying company.
In this case, we have an analyst report, which is conservative in every respect, and still posts a 12 month target of $1.80, showing a seemingly absolute worst case scenario. I say the report is conservative in that the revenue is on the low end of guidance which was given on PO's as at a certain date in the past. Since then there have $4.4 million in PO's announced, plus other small ones not announced. Further to that, the revenue forecasts in the analyst report were, from my impression, largely only based on the Indonesian wimax and recurring wifi revenues, and did not factor in any of the prospects with India, China, Kuwait, Russia, and Alcatel-Lucent that were announced in the call this week. Some of these were also disclosed to be resulting in shipments in the next few weeks as well. I also feel that the gross margins were conservative and could easily make +40%, especially if revenues do become higher (consistent with how Jim Tocher said that costs of sales were largely fixed and should increase as revenues grow). Also, Canaccord included further dilution of the common stock through the issuance of $10 million in shares, which is obviously not management's intentions, as clearly stated by Jim Tocher.
Using parts of the cost structures in the Canaccord report, and adjusting for higher revenues of say $60 million and gross margins of 41.5%, you could easily get an EPS of
.20/share, of which the EPS for Q3 and Q4 would be higher to offset the negative EPS in the first half of the year. If you were to annualize the EPS of >
.20/share for the second half (as first half of the year isn't representative of the business going forward) and get an annualized EPS of >
.40/year and apply a P/E multiple of 20x earnings (which wouldn't be out of line give the high growth prospects of the industry, and specifically the company), would a price of $8 ($8.00=
.40*20) be unimaginable? I know that is looking forward, and that there is certainly some risk with achieving those numbers, but it certainly seems reasonable. I just wonder how the company can trade at such a low valuation given all the information that has been made available to us over the last few weeks. I do own shares in the company, and have certainly used this opportunity to buy more, although I just wonder how the market can be so inefficient.
Anyway, this is just my personal opinion, and should not be relied upon.
Regards,
AmericanInv