BTW, I would agree that about 50% of collection is almost certain, as it appears almost 50% of the companies revenues come from departments within the state of California. California just signed a new size-able budget and isn't having the same budget shortfalls as tech companies thrive and general business conditions are accommodating.
As far as I understand it, EBITDA shouldn't be the main metric to value the company, net income seems to do a pretty good job reconciling real costs and expenses incurred in the acquisition process, both cash and non-cash. The other important metric is free cash flow which has been anemic as receivables, both billed and un-billed, are increasing. Moreover, recognized revenue on the un-billed receivables in the businesses NVEE operates in are likely to underestimate costs if projects aren't completed in time or the cilent determines the project didn't meet expectations and requires follow-up work.
To price the company north of $20.00 seems to ignore these risks. But at least for now, the price-action is quite favorable and may remain so should the company fulfill their long term version and push net income/share to over $2.00 a share in 2-3 years.
There are a lot of moving parts, but the most reliable numbers, imo, are the Earnings Per Share and the y/y comparisons when comparing all current businesses currently under NVEE's umbrella y/y in order to ascertain real growth.
Working capital adjustments aren't to be expected if the acquiring and the acquired are communcating properly. To date, the company has not delivered over $4M+ in free cash flow, although they certainly should reach that number this year. I'm not sure where you see Days Sales Outstanding data, as I haven't seen anything in the latest filings, but as long as receivables are paid in timely fashion as you seem to imply is merely a formality, then the company isn't in any serious danger.
However, what I have yet heard you address is the fact that the company has shown negative earnings growth comparing 1st Q 2014 to 1st Q 2015 on a proforma basis. Time must pass before there is proof that the less hands-on flat management structure across many the five verticals will end up generating as much cost savings as anticipated so that these companies aren't collectively contracting.
Parlsey, as I read your posts I see you often mix apples and oranges....I might suggest a book for you: Securities Analysis, by Graham and Dodd, It's the basic standard and bible for intelligent investors and if you understand most of its contents, I guarantee you will be a 100X better investor in the long run. It's a $40 investment that can reward you beyond your imagination. - I wish you Good luck !
EBITDA is not $15M but based upon guidance, that is what it appears it will be for the year 2015. And that EBITDA when non GAAP includes about $800K of non cash stock based compensation. (Non GAAP EBITDA for the last twelve months is $10.963 million....fyi). From EBITDA, you can subtract cap ex, cash interest, cash taxes and you can get a feel for the free cash flow. It seems that there are very few working capital adjustments since the current ratio appears static over time.
So now tell me what the free cash flow yield is.
BTW... the PEG ratio is a metric for amateur stock pickers. You won't find that metric in an accounting or corporate financial analysis book.
Certainly not, you asked me to provide one financial metric that could merit a $12.00 price tag.
I believe that you are an intelligent investor and know what you are doing, but correct me if I'm wrong...
Trailing Twelve Months Free Cash Flow is $0.02, if the historic data I have is correct. Although that should certainly improve dramatically, Wouldn't the current Trailing FCF be .008%?
The balance sheet may show low leverage, but does that mean any company that has low leverage is worth buying at any price? Currently they have a 2:1 current ratio, but why is that something to get excited about? Additionally, hey are able to maintain low leverage because they dilute with each purchase to offset additional leverage while having sold stock much cheaper than current prices to generate cash.
At this moment, EBITDA is not $15M, and the number is a bit deceptive considering how much of the company is built on buying growth; so amortization, newly issued shares, stock based compensation and future payments are not stripped out - which constitute a pretty hefty chunk of EBITDA, which exclude those earnings minimizing line items.
Did you listen to the conference call ? Did you even model this company out to understand the cash flow statement and calculate the trailing twelve months free cash flow yield ? Did you even try to understand the balance sheet ? low leverage ? only $1m in interest expense on about $15M in EBITDA and diminimous cap ex spending ? I could go on and on with questions for you..... but I feel that PEG might be the limit on your ability to value a company.
OK, but what in particular looks strong about the cash flow statement? Other than backlog; which appears to be slightly at odds with 2015 guidance, because 2015 guidance includes Mendoza and backlog does not; what are the numbers particular inspiring in the balance sheet and the cash flow statement which should merit these valuations?
PEG is only one of many metrics and PEG is seldom used by value portfolio managers since it ignores many more important metrics in the balance sheet and cash flow statement.
The bubble popped for an hour......
$12 is no more realistic than $112 when the number is pulled out of hat.
The reason I think $12.00 is more realistic is the company's own guidance shows basically no organic growth in 2015 on the revenue side. On the earnings side, it is hard to tell without seeing the financials of Mendoza.
I'm not sure if hoping margins climb while corporate profit margins in general are unusually high is a good strategy.
A PEG of 1 considering an optimistic 11% organic growth rate = $12.00
However, I'd agree that would be on the low end. High end = $18.00
Stocks are valued based upon current results and expectations. 2013 is in the past and now remains a reference point. NVEE is being priced on the value of the current and future EBITDA, earnings and cash flow ......and that is with the margins just posted which is in the low 40% range. A return of margins to the past 50% range would increase the pretax profits of this company by $13 million and value of the stock would be much higher accordingly. A return to those margins would be a bonus to shareholders. But based upon current margins of low 40% range for the last 4 sequential quarters the value of the stock is where it is. I am sure management knew the margins of the businesses they acquired and valued the businesses based upon those margins. Acquisitions with higher margins would cost more to acquire and that might not make their purchase financially attractive since their earnings relative to purchased price might not be accretive to earnings. The focus on their purchases is that they must be "accretive" to earnings rather than their historical margins.
I agree about the 15 multiple.......yet since the company still has the financial flexibility to make more accretive acquisitions.....and seems to have executed so far on the current acquistions, the market will remain optimistic going forward and place a higher valuation.
As for growth, the market is looking a quarterly comparisons. Even if proforma growth may have been higher according to your calculations, the market is pleased with actual comparisons. That is what matters to the market.
A sell side analyst this morning raised its target to $26. As usual, after all the hoopla is over, I expect the stock to trade back lower on lethargic volume.
So tell me, based upon a few nvestment metric valuations, TEV, EBITDA, earnings etc and looking at industry comparables, how do you get $12 as a fair valuation ? Or is $12 a number pulled out of a hat ?
My main point is that as of the moment, with all currently held companies under NVEE's flag demonstrating...
-7.1% margin growth
-2% earnings growth
-1% revenue growth
...the company appears to be in the process of an attempt to buy earnings and have yet to prove they can grow the underlying businesses and recognize synergies.
Are you joking?
The results were categorically negative. If NVEE was still priced around $12 per share, I'd say they are inline. Priced at $23, numbers are a major fail.
The guidance did not come OVER consensus, unless you use the most optimistic numbers given. The guidance for 2015 EPS midpoint is below the consensus by $0.02 at $1.10. Typically a business like NVEE growing steadily would get a P/E multiple of about 15 during bullish market conditions. But I'd argue that would be far too optimistic because of multiple indications showing adjusted organic growth, if acquired companies were included retroactively, in regards to earnings and future revenue estimates is negative.
Moreover, last year demonstrated negative adjusted organic growth to the tune of 2% as measured by net income (see the 10-Q, note 4, page 14) and after unrounding the numbers given which appear to be $0.19 vs $0.19. In the statement, it appears that there was 0% organic earnings growth when acquisitions are included, but it is a bit worse than that because the properly rounded number is $0.20. The 2014 numbers if properly rounded would have been $0.20 in 2014 compared to $0.19 in 2015, making it clear they are buying businesses with slipping margins. With revenues growing 5.6% across all current NVEE businesses vs. last year, it appears margins shrank by 7.1%. Can NVEE resurrect those margins? That's a big question mark.
With NVEE stock priced to perfection at the moment, those are less than exciting numbers.
I'm also looking at the company's revenue numbers from 2014 and adding 2014 earnings from JLA, BURIC, and MENDOZA acquistions as stated in the press releases (of just under $10 and $15 million respectively).
2014 recorded earnings = $108M
2015 estimate = $132M midpoint
At first glance, this looks like a 21% growth in revenues.
108M+9M+14M+2M or about $133M
Based on the midpoint revenue numbers, revenues drop by 1%.
Congratulations on a fantastic trade. Over 100% in less than half a year, and more than is possible to make on the short side unless constantly rebalancing, which is hyper-risky. Anyways, Awesome trade.
Results were as I expected ....while gross margins were down 700 BPS, EBITDA margins were a hair higher. DSO was 88 so nothing changed there. 5% more share outstanding from last recent quarter and the company has more cash than debt (thank you warrant exercisers). The company has the financial flexibility to do more acquisitions in the future I feel. Interest expense is only $1m a year.
Assuming 10% EBITDA margins on $137M in revenues, the company is valued at 10X EBITDA which is fairly valued in this industry. The next few quarters should each average about $.08 EPS higher per quarter. So Q2 should be about $.27 EPS FD. With a small float I think the momentum players could really take this up easily. I will leave that game for them to play.
Congrats to all holders while many I guess were watching the 50% run up in just a couple of months. Now I will be watching !
Roll up strategies can be poison when excessively levered especially in a cyclical companies, yet that strategy has created many centi millionaire in the PE world. You forgot that the roll up depends on buying at an attractive valuation to start (cheap) and then realizing savings through syngergies and the ability of the combined company to generate free cash flow to quickly delever the company. I have seen it work successfully more times than not in my career. My favorite form of financing for acquisitions has been a mix of cash, stock, debt and an earn out. Thus leverage is not crazy and the seller benefits if things go well.
If DSOs exceed the industry norm, than there is a valid concern. But of course we know that govenment part of that business can take time to collect....though it will eventually come. How much of the A/r is government related ? FYI...the DSO last quarter was 91 which is the same as 8 quarters ago.
This is a low cap ex business which is one less risky aspect eliminated. Working capital is the main need to grow the company and as you said collecting is important especially in a thin margin business.
I bought the shares the day after the warrants were exercised and I extrapolated a valuation based upon the 1st acquisition and the expectation of another sooner after that.
I sold my entire position today as it appears that momentum investors are now in the game. It's not worth 10x 2015 EBITDA to me. If the stock gets hit I may revisit....otherwise.....there are other better opportunities.
Enjoy watching !