Valuing a High Margin, 20%+ CAGR Growth SaaS Business…I want to talk about this name and I think its real timely given it just put up its 4th consecutive Q of 20%+ growth. This business is a cashflow machine.
It moves cash for customers and prints cash for shareholders.
I am not going to talk about fundamentals I want to talk about how I value the business;
Price to Earnings
Stock trades approximately at 14x P/E but given the fact they have $4,270,673 (or .16/share) in cash on the balance sheet the enterprise value is much lower.
So on an EV/Earnings basis stock trades at a value of 11.5x Earnings.
Price to Earnings Growth
Or looking at it another way on a Price to Earnings Growth (Adjusted for FX and Taxes) I get an earnings growth rate of 30%.
So I get to a PEG ratio of 0.40x.
Price to Sales
Stock trades approximately at 5x Sales.
On an EV/Sales basis stock trades at a value of 4x Sales.
Price to Free Cash Flow
This is my preferred metric for asset light, high margin & cash generative business like this that has a real steady recurring sticky revenue base.
Stock trades at approximately 10x Free Cash flow
On an EV/FCF basis stock trades at 8x Free Cash Flow.
So What is it Worth…
I think its worth a 1.0x Price to Earnings Growth. Therefore, it should trade at an EV/Earnings rate equal to the earnings growth rate which in this case is 30%.
So on $1,400,000 of earnings with a 30x P/E multiple I get a value of the business of $42,000,000 add the cash $4,270,000 gets me to $46,270,000. On a share count of 27,286,332 gets me to a target price of 1.70/share or 120% upside.
I just want to float another concept that I think is gaining popularity with these large cap slow income stocks as they are being used as bond equivalents and trading below a 5% Free Cash Flow yields (In some cases down around 2-3% FCF yields). As there is less and less positive yielding instruments and the chase for yield intensifies the value of these cash generative business gets more and more valuable.
Applying that logic and a 5% Free Cash Flow yield to Namsys gets me to a target price of 1.45/share or 90% upside and a core underlying income stream growing 20% YoY. I would take that any day over these low/no growth consumer staple stocks or any 10yr bong yielding 1 – 2%.
These are the type of assets you want to be accumulating whether you are looking at earnings growth or free cashflow generation (Earnings Yield).
Scary thing is I think they have the ability to growth that cashflow stream 10 – 20% compounded annually for the next 3 – 5 years.
Stock is worth at least a Lonnie, give it a little valuation expansion worth a US greenback.
LONG