I bought into PME at just under $0.80 at the end of 2009. Sadly,...

I bought into PME at just under $0.80 at the end of 2009.
Sadly, I didn't have the cojones to pony up for some more when they later got down to $0.16.

I never thought I would own a stock with a trailing PE of 153! At least not one that isn't a distressed stock. Based on the latest first half result, annualized, the PE is a slightly less stratospheric 84. I now watch PME with a mixture of delight and trepidation.

I played around with my less than strictly accurate value model, just to see what earnings growth rate is needed to have its current price make sense. I came up with this set of parameters as one of the infinite array of possibilities.

SP $4.75
Terminal PE 2.25 years from now 62
Dividend payout ratio 70%
Earnings growth rate 50% PA .
With a terminal PE of 64, and earnings at 10.5 cents, the corresponding SP would need to be $6.74.
The rate of return on the investment is then 17.8%PA.
(Obviously different assumptions would vary the results.)

Will earnings grow at 50% PA for two years plus?

The table below summarizes the announced contract wins back to just before the last eofy.
Using a back of the postage stamp analysis, and ignoring implementation lags, the sales contribution of these announcements to the 2016 result might be $8.2m, which if there was no net attrition of earlier contracted revenue, would add another 47% to last years sales of $17.5m. We could have a shy hope that that such a sales increase would also flow through to earnings. (Yes I know there will be lags and cost due to implementation, which may only be partially offset by cash coming from contracts won earlier, but there is only so much room on the back of a postage stamp.)

	Column 1	Column 2	Column 3	Column 4	Column 5
0	Date	Client	Contract m$	Term in years	Contract/term m$/y
1	21/04/2015	University of Florida	9.5	7	1.4
2	24/09/2015	Allegheny Health	11	5	2.2
3	16/11/2015	German Gov	3	5	0.6
4	4/04/2016	Mercy Health	21	7	3.0
5	27/04/2016	Our Lady Health	7	7	1.0
6		total	51.5		8.2

Would the market pay 62 times earnings for the stock at that point? Who knows, but it is presently paying 84 times its earnings from 6 months ago.

Given that PME have a toehold in a huge market, just about anything is possible.
It will depend on just how good their product is and probably some luck as well.
Think about the video recorder format wars. Sometimes you need a bit of luck to have your system become the defacto standard, and then to capitalize on that good fortune, you have work really hard to stay ahead of the competition who will inevitably emulate your technology.

You pays your money and takes your chances.
Cheers