Share $ Sensitivity / CMI penetration of PAA Mkt $51.31HIGHLIGHT
On the low end (2021 market size, 0.5% market penetration) the future share price is $3.01/share. On the high end (2031 market size, 5.0% market penetration) the future share price is $51.31/share
Supporting Analysis:
My inital investment in CMI was mostly as a company that was profitable, reasonably valued and provided some exposure to the satellite market space. With the introduction of the Phased Array Antenna (PAA) product the company was immediately transformed and the stock rallied to reflect this new potential.
In many ways, I wish the company had not announced the PAA product until it was much futher along in its development. Several years on from the announcement of the PAA, we are finally getting to the commercialization stage. The press release that CMI is showing their PAA product at a trade show suggests to me that the product is very close to go to market and will begin to start producing revenue and provides access to one of the most active, dynamic and fast growing markets in the communication space, namely, the Low Earth Orbit (LEO) satellite market that is being created by Elon Mush / SpaceX and Jeff Bazos / Amazon Kupier.
These technologies are already reshaping the commuications market and we are just in the infancy of this transformation process. Apparently, a global mobile phone product is being built that wil connect to LEO based satellites and will provide almost 100% coverage of the earth. Look at the market cap of all of the various wireless service providers and image that shifting to a game changing technology provider. I think there is a very real possiblity of this.
I had never gone through the process of creating a sensitivity analysis to understand the "What if" potential that CMI PAA product could have to their share price. I took some time this morning to do that.
I used modest market penetration number ranging for 0.5% to 5.0% of the present (2021) and future (2031) PAA market sizing (according to https://www.businessresearchinsights.com/market-reports/phased-array-antenna-market-102544 ).
I also applied a very low 50% contribution margin and valuation multiple of 20x / EBITDA. I then to the porential incremental share value (as reflected by the current share price as a reflection of the legacy b base business) and added the new potential PAA contribution to derive a new potential future share price at varying levels of market penetration.
On the low end (2021 market size, 0.5% market penetration) the future share price is $3.01/share. On the high end (2031 market size, 5.0% market penetration) the future share price is $51.31.
I understand that this a highly simplified "analysis". However, the point is made that there is massive upside potential to this stock. About 2 years ago I increased my holding in CMI by 5x. I have a little bit more to buy (this is my 3rd largest position). The hedge fund I worked at specialized in find stocks with dramatic asymetric risk. CMI most certainly falls into this catagory.
I have be frusterated by the slow progress with the PAA product but the reality is that I think we are on the cusp of the lauch and the potential realization of the scenario presented above. My parent's always told me to be patient, as I get older, I have learned to control my impulses. It is certainly going to pay off handsomely with CMI I feel.
As always, please LIKE my post of you appreciate this work so I know I should continue to contribute here.
Would love to hear feedback / opinions as well. This is mine, happy to hear yours as well.
All the best.
Here is my supporting work (screenshot of my excel sensitivity analysis).