I don't think comparing P/S of any individual company is very useful. P/S of the market is low because it is made up mostly of big stable profitable companies that are growing at about the rate of inflation or a little bit more, on average. It is completely unrepresentative of fast growing companies that have not yet turned a profit and should obviously have higher P/S, but how much higher?
P/S itself is not a very useful measure for pricing a company, and is only used because it is the only measure. Whether a P/S is reasonable or not depends on how long before the company turns a profit and how fast it will grow in future. There is enormous variation in growth from year to year across small companies and that information is virtually impossible to know with any certainty, making valuations at this end of the market very rubbery.
If someone, were to ask me whether AL3 is cheap or expensive, my response it that I don't really know and I'm taking an educated bet, but it is no more than that.
What I found interesting was the analysis around revenue. You were suggesting that revenue of $17 M would be required to reach profitability assuming no growth in cost, which you acknowledge seems to be unrealistic and seems to also suggest that you're number broadly agrees with mine at $20 M. If the company achieves growth at an average of 35% over this year and two more it would reach that figure.
I would suggest that a company that is growing at 30+% for the previous three years would warrant a P/E of closer to 50, so if that were all true I'd expect the share price to be trading around 50c, so that would be an extremely good return. To my way of thinking AL3 needs to grow revenue at probably 20% over the next 2-3 years to be a reasonable investment, and more than 30% to shoot the lights out. The question for me is: Will it exceed 20% growth on average over the next 3 years? If not I should look for better opportunities, if it is, I should hold on to the ride.
As to the answer to that question, I'm just guessing. The best that I can say is that it seems reasonable, and to that I'd add that I like that management has skin in the game and motivated to increase the share price.
AL3 Price at posting:
19.0¢ Sentiment: Buy Disclosure: Held
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