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Novadaq Technologies Inc. Message Board

  • sethbru2 sethbru2 Aug 15, 2013 2:13 PM Flag

    Valuation PE=120

    It looks like the projected 2014 earnings are 0.11, thus making the forward P/E about 120. Can anybody explain how this is justified? I am not short - just considering taking a long position, but the valuation scares me. Thanks.

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    • A stock's value is equal to the discounted value of the very long term stream of free cash flows that the business will generate. So why would you draw valuation conclusions about the company based on one-year forward earnings, especially for a company that is just beginning to scratch at the large opportunities in front of it. In 2003 ISRG posted a per share loss of $0.16, with the stock then at $14. Was that price justified? A negative PE...oooh that's scary. In fact it was more than justified, it was dirt cheap as it returned 30x to investors over the next decade. Your approach to valuation is foolish.

      • 1 Reply to krispinm
      • andersongordon Aug 19, 2013 7:52 AM Flag

        Krispinm I agree that PE valuation is flawed, even ridiculous when earnings are negative, just positive, even strongly positive when there are inflection points ahead, but Wall Street Analysts have very little training in projecting company sales and margins into the future out 3 years and beyond. Even with a strong discounting factor of 20% or greater the sum of all future earnings out beyond 2 years can equal 75% or more of the stocks valuation. As those "expected" earnings trajectories change with new entrants, new laws (who would have factored in Obamacare in 2003?), etc. the price can shift by up to 50% or more even over a short period. So the weighting of the immediate known earnings results becomes dominant. For that the P/E model is a "handy dandy" rubric for the market to price a stock. I actually start with the NPV modeling for choosing companies I invest in but have never found its price predicting power to have strong correlation with the Market.


    • andersongordon Aug 15, 2013 6:34 PM Flag

      Dr. Hausen stated in past conference calls that the new marketing people hired for Luna/PinPoint should take 6 months to come up to production (training, mentoring, etc.) and they should sell about $1 million apiece per year. They hired ~30 persons by Q2 end and expect to hire another 20 by year end. That sounds like $50 million in revenue addition by for 2014. If they have gross margins of 62-65%, they will need to pay for ~$10 million in non-direct expenses (research, admin, etc) that leaves ~$50*.62-$10=$20 million net (accumulated tax losses should nullify any earnings for years to come). With another $10 million for new marketing hires and inventory support, that leaves about $10 million for the ~50 million shares or $0.20 @. The P/E should be around 50-60 next year as earnings growth should be around 50-60% for years to come. Not unreasonable. A rule I use is P/E = 6 + Earnings Growth*100 = 56-66 just about where it should be. Looking ahead to 2015 earnings should explode and the P/E moderate to 40-50 with earnings growth of ~40% for years.
      This growth number was stated by Dr. Hausen in numerous recent conference calls. I think he is correct and 40% growth should be attainable.


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