Hey mate, no worries about being new to the world of investing, a bit of a lesson in finance for you:
Share prices DO NOT MATTER. Its the market cap that is underneath the share price that matters (market cap refers to the size of the company, and is calculated by total shares outstanding within a particular company multiplied by the current share price).
That means at $0.285, FIJ is worth $29 million (thats 0.285 x ~100M shares that are out there to be traded for FIJ). Now you have something that you can perform further analysis on.
NOTE: The share price from one stock and another cant be compared, due to different amounts of shares outstanding in each company. Thats lesson number 1,
Lesson number 2. Is FIJ worth MORE than $29 million as a company? Or LESS than $29 million as a company? If its worth more you buy as its considered undervalued, if its worth less you sell as its overvalued.
How do you figure that out?
Well to keep it simplistic and not enter advanced methods of equity valuation, lets look at its revenue of late in a very, very basic way of valuing companies:
- FIJ have a $3.5M deal with Pathway International yet to be recognized (meaning revenue to still be accounted for in future quarterly reports, named 4C announcements, which means if this minimum quantity of product is sold under the contract, FIJ will report an average of $440K revenue a quarter from this contract/$1,760,000 annually)
- On top of that, the newly announced $8M minimum revenue signed this morning over 3 years (a minimum of $2,666,666 annually)
- Then you have coles revenue, which isnt quite at a stage that you could accurately estimate revnue.
- That means +$4.4M annually is expected, before Coles revenue.
Under general growth stock projections, without the assumptions that over the next 3 years these wont be the only contracts to exist (we expect more to be signed) the current valuation would be around 8-10x revenue. This changes industry to industry, but usually for micro caps its around here. That would mean $4.4M x 10 = $44M valuation, meaning current valuation of what its currently trading at ($29M) equals undervalued. Although because we expect more contracts to be signed, it will likely trade higher. That means 44c fair value at these prices, possibly 50-70c range depending on future contract speculation.
NOTE: This is extremely, extremely primitive analysis. Its not meant to analyse the value of the stock, it just simply explains how a process like this is conducted and hopefully shines light onto how stocks are considered undervalued or overvalued.
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