Assuming management is right and profit margin does improve from Q2 and the 30% rev growth guidance holds true then ZAGG’s should be at least $4.00. Here is why:
Discount the stream of income starting with .13 and increase that by just 25% for the next year and then 12% growth every year after that. The 12% comes from looking at other comparable retailers and their 5 year estimated growth rate. 12% is on the low end, especially because Zagg is only in a sliver of the market and has a potential much greater than other retailers with estimated growth rates of 12% or higher. The NPV of that stream of income is $4.01 if you use a discount rate of 9.8% (which is derived from the risk-free rate plus the beta of .76 times the difference between an assumed 12% market premium and the risk free rate – the 10 year treasury).