Yes, I completely understand not being able to calculate a PE for Nearmap is frustrating especially when we constantly hear that everything is doing so well, i.e. growth is better than expected, the company is debt free, & the US is making greater traction than AUS initially.
Being a long term holder I often find my brain having an argument with my heart as to whether Nearmap will continue to be a great investment.
And if all the facts & industry trends tend to favor the stock then “why oh why” does it always feel like a stock that is moving in a “two steps forward & one step back” fashion?
I believe the many “one step back” movements occur because many investors really wished Nearmap should be less aggressive with their growth strategy. That is Nearmap should have made its AUS operations very profitable first before slowly building up its cash buffers to around $20 million (instead of diluting shares & doing a capital rising) then expand their business into the US. Implementing a slower growth strategy would ensure the company is at least profitable every year and with a valid PE.
Makes perfect sense right?
Long term holders will frequently agonise over questions like:
1) Why did Nearmap say they didn’t need additional funds to execute their growth strategy and then pulled a “$20 million capital rising” surprise back in Nov 2016?
2) Why are there no specific major contract announcements to the market when every other indicator (big or small) seems to be pointing to a massive growth trajectory?
3) And with the above 2 questions circling in our minds, why is the CEO and directors constantly giving themselves a pay rise and more options?
Why?
My view is that, unless you have met the Nearmap management team & really tried to understand their motives, you will always be puzzled by their decisions.
In my opinion, time and time again the Nearmap management team has given me the impression that they
Do Not want to be a good little Aussie tech company earning a tidy profit.
The impression I get is that Nearmap wants to be a
Great Global Dominating Company earning a Great & Sustainable profit !
And to achieve this goal they are willing to sacrifice the
certainty of the “tidy profit” with the
potential in earning the “great sustainabile long term profit” in a heart beat.
This “short term pain for long term gain” attitude is embedded in their culture, their business models and their design principles.
As an
instrument of investment evaluation, can anyone truely assess how much this cultural mentality is worth ? The answer is No.
And with Nearmap being a leader in using their 2D/3D Geo-Spatial Data & Analytics in resolving current & future business issues, can anyone truely assess
quantatively the potential market opportunity that Nearmap is in? The answer is again No.
But just because we (as factually based investors) can’t really say how big Nearmap’s market is, or whether having a “short term pain for long term gain” attitude is ultimately going to be good for the company, this
doesn’t mean it is worth nothing.
And because the above cannot be quantitatively evaluated, investors are often confused as to where this stock can end up (or even finding a point of fair value).
If anyone is interested I encourage them to review the financial statements of Tesla Inc from 2013 to 2016 and then compare this to their share price in the same period.
https://www.nasdaq.com/symbol/tsla/financials?query=income-statement
For Tesla, in the period between 2013-2016:
Although Gross Profit grew by 250% from +$456m to +$1599m
Net Income slides 812% from -$74m to -$675m
Share Price at 27/12/2013 was $151.12 & at 30/12/2016 was $213.69
That is the Tesla share price increased by
41% despite the fact that it has accelerated its Net Income loses by 812% & while only growing gross profit by 250%. As the Tesla earnings has always been in the red, no valid PE is possible.
So on paper, is the Tesla business worth nothing? No.
In fact the share price of Tesla as of 12/2/2018 is now $310.42 (which is a 105% increase from the end of 2013) & that is occurring despite Net Income falling even further into the
RED.
So why is this happening?
Surely a stock with a
rapidly diminishing Net Income value should also have a share price that follows the same doomed trend?
I believe the answer has a lot to do with investor’s valuations of the
massive long term potential & dominating market positions that Tesla is in. So even though the company’s financials are not great, investors are still willing to overlook this temporary situation being in the red, because in the long term, investors have the faith that Tesla will dominate every industry its products are competing in.
I believe we just need a little bit of this same faith in Nearmap & the sky is truly the limit!
