Crossy the market values future cash flows, plenty of oil & gas businesses were making huge profits say last year during reporting, yet their future value is much lower. Would you pay the same knowing that next year their 'profits' might be non existent?
This from the Canaccord research for the future projected cashflows for CV Check. As you can see they have estimated that FY18 NPAT would be $8.6m and on a 20x PE (High Growth Technology comparable) the estimated Market Cap would be around $172m Market Cap. This valuation translates to the 80c price target.
With high growth businesses, during the growth or early stage they need to re-invest capital in order to capture market share, once you have reached a critical mass you can reduce marketing expenditure (which was the major cost you are referring to in the half yearly) and this will feed straight to your bottom line. A good book to read is about Amazon called the Everything Store... who DO NOT turn a profit. They are now the largest retailer in the US and the company makes no money. Amazon have a massive valuation because the market loves the growth story. While i don't completely agree with high burn rates and the conservative investor in me likes to see a lower burn, i do understand that if CV Check capture this market now, it will be extremely lucrative in the future.
If you read the latest qtrly's for CV Check you will see this marketing expenditure has been significantly reduced already yet the growth has remained. They have a very sticky customer base which is great and now international growth plans!
With costs remaining low and revenue growth per qtr at around 20% this is a fantastic business to own. Now they are beginning to expand overseas, it's likely those future revenue projections will continue to increase and when the company does begin to move into CF+ territory (maybe end of this year or start of next) then no doubt investors will begin to see the potential of the company and if they don't...well those who do find it first will make the most money!
Hopefully this helps.
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