Sep 30, 2016 Financials Released on SEDARQ3/2016 financials just out. Notable takeaways are:
- Cash was $842K as of Sep 30, 2016
- A whopping 3.7M warrants were exercised most of which (3.6M) were during this quarter which brought in $370K in cash during the quarter based on the cash flow but this has the impact of keeping a cap on the share price (reasonably assuming those exercising are selling their shares)
- Cash flow from operations was an outflow of $500K during the quarter
- Cash flow from investing was an outflow of $280K during the quarter
- Total cash outflow is the sum of the above at roughly $780K
- This implies that Q3 cash burn is roughly equal to their Sep 30, 2016 cash position
- The Q3 cash burn was considerably higher than the prior quarter so it will depend on how high the Q4 cash burn is to see how long their cash position will last
- I think it is likely that Q4 cash burn is sizeably below Q3 which will provide the company enough runway to make it throug well into Q1/2017 without the need to tap the market (at which point revenue generation kick in).
- Another reason I don't think they need to tap the market now is that we are 30 days away from 2017. Things will really slow down after Dec 20 for the holidays and there isn't enough time to close a deal before January 2017. So they must have enough to take them well into Q1/2017.
So I'd characterize these financials largely as a non-event. The mantra is "look forward, don't look back".
This takes us to the question of valuation. I hear you Joe that you think the valuations are way out of wack and I woudl agree if there were no revenues next year. But we know this is not the case. The big question at this time is what will revenue and growth be next year.
Using a forward 12 month price to revenue multiple and conservatively assuming LDS will generate $8M of revenue next year, LDS is currently trading at ~5x versus the peer group which is in the range of 18x to 22x (I am using D. Deadlock's projected 2017 revenues for the peer group and recent share prices for these calculations). On this metric alone (assuming the peer group price does not fall by 75%), LDS is undervalued at this level and should go up 4x from current levels to catch up to the peer group.
You can then throw in all the other valuation enhancing qualifiers that would make a 4x gain from current levels a conservative estimate such as:
- The revenue estimate of $8M is likely low/conservative
- The company is selling in California which is a much bigger market than the Canadian peers
- The stock is unknown to US investors. As it gains more traction in the US it will move higher. Once it breaks above $1 it will be on the radar screen of wealth managers, sell side analysts and buy side shops.