PME's market cap to trailing revenue is actually 90.6 times rather than 8. However, because PME has a high profit margin, the market cap to revenue ratio makes PME look more expensive that it really is. For example, APT's market cap to trailing revenue is a more modest 62.5 and so looks cheaper on this metric. However, the comparison is not much use unless account is taken of how much of the revenue each company turns into earnings. APT's FY2020 operating margin is only 6.8%, whereas PME's operating margin is 66.1%.
If the operating margin is taken into account then:: PME's market cap to (revenue x op margin) is 137 times. APT's market cap to (revenue x op margin) is 919 times.
Which one looks expensive now? OK Both stocks look expensive, but which one looks more expensive? (We cannot compare PE ratios because APT doesn't have one yet.)
These metrics take no account of growth. PME's 5 year sales growth is 26.4% PA, APT's sales growth over the last 2 years is 81.2% PA. If the above multiples are divided by the respective sales growth percentages, PME still comes out as about half as expensive as APT.
As measures of value, rule-of-thumb ratios like these tend to break down at the extremes, especially when they omit relevant parameters. And PME certainly is an an outlier on several dimensions, which tends to put it at an extreme. I guess this is why folk go to the trouble of doing discounted cash flow valuations, but even then, the results depend on a bunch of assumptions.
.Anyway, kudos to those who nabbed a good price for their PME shares on Tuesday.
Gold in Sacks have a new report on PME dated 9 June 2021, which is worth a read, It is from their Global Healthcare conference. Evidently the PME CEO and CFO attended. GS maintain their 12m target price of $53.80
"Deal pipeline remains robust; 2 contract renewals expected in coming months. PME continues to emphasize that its pipeline remains strong, and that it has anumber of opportunities across a broad range of institutions that are continuing toprogress through the sales cycle."
"In addition, there appears to be a positive network effect whereby leading KOLs are sharing positive experiences with one another, a feature which hasbeen corroborated in our own conversations with the customer base."
As a social media Luddite, I had to look up "KOL". I think it stands for key opinion leader. What next?
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