I didn’t bother calculating the WACC because there is no point in this situation as the ROIC is negative. Moreover, I generally don’t tend to use valuation methodologies that rely on precise WACC calculations (I think the theory is relatively important because it helps you understand the drivers of corporate value, but that in practice I think the validity is highly questionable). If you want to self-teach on valuation the best resource is Damodaran’s website (NYU Stern). To be clear, I was just addressing the poster above a point, which I believe to be fundamentally incorrect.
If you want to work out If an unprofitable company will become profitable with growth, you need to: 1) be sure the growth is coming 2) examine operating leverage. - the proper way to do this is to break down each item in the profit and loss statement and see how they are changing as revenue is growing. This gives you an idea which costs are fixed and which ones are variable. You can then model out some future numbers to work out the revenue needed to get there. - in Senseras case there are 3 big red flags: 1) the gross margin % has dropped from 50 to 40% with scale (this is really bad- it means the revenue is volume rather than quality) 2) sales and marketing has increased from 6% to 11% of revenue (the revenue is being bought with more expensive marketing) 3) There is the additional burden of this interest which will now have to be addressed.
i haven’t done any more detail regarding this because it really fails all my risk tolerances as an investment- the chance of losing all my money here is not insignificant.
SE1 Price at posting:
8.0¢ Sentiment: Sell Disclosure: Not Held
