SLA (ASX) Ann: 2022 AGM Presentation

Originally posted by Ragnarolf: ↑

Well that would get down to how you value this company.

Cut through all the glossy pictures and models and this company made 6.4M Net profit after tax in FY22 and it currently has a market cap of 105M. That gives it a price earnings ratio of or PE of 16.40. Now if you choose to define this company as a "growth stock" and feel they can achieve a 25% uplift in profit PCP year on year. Then one could argue the stock was cheap and undervalued.
If how ever you feel that is not achievable and the current profitability approximately aligns to the ongoing underlying profitability. Then one could argue the company is overpriced and still has some way to fall.

Having a quick thumb through the annual report a couple of things that jump out as a concern me about this company

Gross profit was 42M plus they collected 13.5M in franchise fees. Call it 55.5M in net revenue. Employee wages was 27.3M or 49.1% of net revenue. Which to me seems their margins are too skinny (but that could be typical of the health and beauty clinic sector)

On a cash accountant bias they netted 9.1M cash after operations before tax, off the back of 81.3M in reported revenue or 11%. What would happen if sales slow up because of a recession? If managed get he balance wrong, they have lots of fixed costs the company could quickly flip to a loss.

The CEO and founder received $728,237 in total remuneration in FY22 for delivering $0.12 earnings per share while the stock price more then halved.

Circling back to PE. Its just one quick and somewhat crude way to value and compare companies. Its not the be all and end all, and there are may other ways to go about. BHP current has a PE of 13.5 and currently pays a dividend. Repeat the exercise with the top 10 companies on the ASX who carry much less risk. Why would anyone buy SLA at $1.98? I cannot see why unless you feel this company is about to make a boat load more money in FY23

**Investing in shares comes with inherent risk. Do your own research before making investment decisions. The above is my opinion and thoughts only and is not investment advice.

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You seem to misunderstand how PE works. That is, it doesn't make a lot of sense to compare the PE of companies in different sectors without considering the average PE for that particular sector.

The average PE for consumer discretionary on the ASX is 28.7. The PE for SLA is currently 12.03. Generally, if the PE of a stock is lower than its industry PE, then it's considered to be undervalued in comparison to its other peers. So, SLA is looking pretty cheap.

A comparison with the BHP PE is a bit apples and oranges here. Completely different sectors. All the same, BHP has a current PE ratio of 7.56 compared to a sector average PE ratio for basic materials of 8.41. So, BHP looks only very slightly undervalued.

Seems that SLA is undervalued. BHP not so much. Bonus points, that SLA's success is not dependent upon China's desire for iron ore.