RE:A Discussion on XBC's Valuation and Impact of AcquisitionsUnfortunately very few people seemed to show an interest in your attempt to determine the proper value of XBC shares. Hopefully that is due to a widespread belief that the approach you are attempting isn't appropriate, but based on the many emotional posts since yesterday I don't think there is lots of evidence for that.
Not sure where you got the P/S for PLUG, as it is clearly wrong. As of today's close PLUG's P/S is 116. However, right now they are down 11% after hours, so the new P/S would be 103. If you go back 7 weeks ago the P/S was 200. Who knows where it will be in a month. Using such a volatile measure as a valuation tool is problematic. And even if it wasn't so volatile, one could question the value of comparing XBC's price to a bunch of companies that are potentially all mispriced.
Your approach is inherently backward looking, when real value is based on discounted future cashflows. We don't know what those are, but we do know that XBC is well positioned in markets that are experiencing accelerating growth. If you look at slide 11 of the December presentation, it gives the size of a number of markets: $31B for compressed air; $68B for industrial gas; $11B for biogas upgrading (RNG); and $5.9B for merchant bulk hydrogen (out of a $2.5T hydrogen economy). Those are massive markets. The question is, how much of that money is going to end up at XBC? Because of the quickly changing nature of these markets past performance may not be the most relevant thing to focus on. Also, a lot of the focus in the past few days has been on performance during a difficult year, one when there was not only covid affecting XBC and its customers, but also XBC was juggling a lot of balls with its various acquisitions. My inclination is to not look at that as indicative of XBC going forward. I would also suggest that companies learn from mistakes, so it is preferable that they fixed the pricing stuff at this point rather than have it blow up with much bigger contracts down the road.
Most of us have no clue how XBC compares to its competitors.I suspect that most people posting on this board couldn't even name one of XBC's competitors (except GRN) in most of their markets. Without knowing that, its a bit difficult to know how much of those market's XBC is going to capture. Those running the company would have a good idea, and on the basis of that they made lots of acquisitions. There are lots of other players who probably have a pretty good idea as well, companies like PLUG, BLDP, FCEL, etc., all of which have the ability to raise lots of money very quickly. I suspect most would recognize that XBC's value is a lot higher than the market is currently pricing it. If a market fails to price properly, eventually someone else comes along and rectifies that.
My belief is that this is on its way to becoming a very valuable company, and today is worth a lot more than the market is pricing it at. Whether it is worth $11.50 a share, I couldn't tell you. But with the growth I expect to see over the next few years, it will be worth considerably more than that. That's my opinion, and 6 weeks ago it was the market's as well.
Walman1123 wrote: Hi All,
Looking to start a discussion around Xebec’s valuation relative to peers, examine their recent acquisitions, and how this will impact 2021 revenue. I encourage you to comment on the following.
I know one single valuation ratio does not tell the whole story but looking at price-to-sales (P/S) we get the following…
Price-to-sales:
XBC - 11.53
GRN - 11.42
FCEL - 77.47
PLUG - (272)
BLDP - 18.69
Acquisition - TTM Revenue:
Imantec - ? Couldn’t find in NR
HyGear - $16,970,000 (Converting EURO to CAD)
Titus - $12.300,000
Air Flow - $11.500.000
Applied Compression Systems - $8,000,000
Total = $48,770,000
I know that each acquisition was transacted at different points last year and will be reflected as a portion of 2020’s revenue, but how much of the expected $57M is due to acquisitions? Given the adjusted revenue guidance for 2020 to be ~$57M is it reasonable to estimate 2021 revenue to be at least $105M (57 + 58.77)? This number would be worst-case scenario with no growth only accounting for revenue growth from acquisitions. Using P/S multiple of 10 – 14 we would arrive at a market cap of $1.057B - $1.480B.
I do think that the recent revenue misguidance by management is worthy of a temporary valuation discount by shareholders - however by how much I am not sure. Trust in management is something that will be earned back with time.
Given that I have been long xebec for ~2 years and have always intended to hold the stock long term, I do not think that it is currently an attractive time to sell. What I am trying to determine is whether the recent downward price movement has been a gross overreaction making it an attractive opportunity for me to average up.
Questions:
How do you quantify management’s misguidance error?
Is the market pricing in acquisition revenue for 2021?
General thoughts on anything above?