Twinvest, it is refreshing to see a post on company valuation...

Twinvest, it is refreshing to see a post on company valuation after all that huff n puff on gizmos and gadgets.

A couple of weeks ago I put forward a question to investors and would-be investors. Is 14 an attractive multiple for Quickflix (refer to my post on 12/07/12).

I found it interesting that my calc was showing $2.25m hitting bottom line based on 125,000 subscribers. Using my rough method I would get $3.6m on 200,000 subsbribers which is rather close to your $4m.

Again I find it interesting that you ascribe of 5 to 8. Because in my post I suggested that "...in the current environment where there are a number of small/microcaps with earnings history and reasonable growth trading on single-digit multiples, I personally don't think 14 is attrative. "

The multiple an investor assigns to earnings or cashflow or whatever denominator, is one that is rather personal. For me, the multiple is a function of "my discount rate". My discount rate is a function of alternative investment returns. In other words, it is the multiple I would and could pay for alternative investments.

If the above sounds a little confusing ask yourself this. If the market was flooded with quality companies trading at a multiple of 2 times earnings. Would you pay 14 times, 10 times, 6 times or 2 times earnings for QFX?

Btw, there is no right or wrong answer but I should hope that a conservative individual would not deviate too much away from 2.

In case Teamsky hounds me for why I am floating around with bearish sentiment, let me just clarify. There are companies that you just don't buy (one example management of dubious character). For all others, there is a price that justifies buying. QFX belongs in the latter and that's why I am here.