Ko
@discovery4
This is a highly illiquid stock that has moved down on low volume. I don’t know if you have experienced a large rerate of a beaten down illiquid stock before, but it takes A LOT of time to achieve market recognition and then it can absolutely take off. Go back carefully through the share price history and announcements as well as the HotCopper posts of things like ANO, SRH, ASH or TPW to get a feel of what happens. That being said, the majority of stocks in permanent downtrends/range bound either eventually go bust or just carry on surviving.
In FRX’s case they have derisked the balance sheet and launched a suite of new products whilst improving operating leverage (decreased losses whilst increasing revenue) whilst the business model has completely changed. I have used the product after extensive research as a consumer and having tried a number of alternatives and it is by far the most convenient for all but the most price sensitive customers (backpackers).
there are still several risks including but not limited to;
- competition eroding profits
- unproven business model (still not profitable)
- obsolescence if microchip with eSim
- swamped by larger better funded competitors
there is risk in ALL things in life, all u can do is mitigate. These figures may be wrong (ballpark from memory) but there was about 35m accumulated losses (essentially expensed to get business to this stage) for a company that you are buying for 10m. For that you have revenue in excess of 6m growing at >50%pa. Comparable businesses achieve EBITDA margins in the order of 15% when they scale, so 6m revenue has the potential to generate in the order of 0.9m profit (if the business was fully mature, which it clearly isn’t). IF they execute 50% growth in top line over the next 2 years, these figures approximate to 14m and 2m ‘profit’ (again I don’t expect them to actually hit this profit target). That sort of business with 3 yrs top line growth and 2 yrs improving operating leverage and execution, would command a multiple of circa 20x forward profit or 3x forward sales in today’s market (or roughly 60m market cap, or 6x (24c) in today’s market (which of course it won’t be in 2 years time. I think these are pretty reasonable assumptions, and with the negative working capital model, once cashflow positivity is maintained, it becomes actually very easy to accelerate growth by investing in sales and marketing with a high ROI.
there is a chance that the thesis is flawed in which case there could be a 50% further downside from here, although the shell is possibly worth more than that! I don’t know about other investors but I am almost half the time with my investments and am doing ok, so I don’t really think there is a problem getting a call wrong either.
why don’t we give it 18 months to see where the share price rather than worry about frankly meaningless daily price movements.
(20min delay)
