In agreement with what you guys are saying- markets are just in extreme fear mode right now in anticipation of jan 26 and march 1 fed meetings. Markets super conservative right now and likely pricing in a worst case scenario of insane 3-4% interest rates.
Analysts/ market survey on the other hand are only expecting 2-4 rate hikes- 25 bp each- leading to max 1% by march 23...
To repeat what someone wrote earlier- increasing interest rates take away from the value of a company (PE compression) since a company's present value is the sum of future earnings; and increasing rates will definitely take away from our earnings in 3+ years due accessibility to credit and of course, an increase of the risk free rate decreases the desire to speculate on risky bets, lowering PE ratios. This goes especially for high growth (high PE) cash losing businesses- where inputing higher interest rates into related DCF models leads to an exponential shaving of valuations.-- this is what is leading to a discounting of our price to sales & SP decline.
Real life scenario though- I don't see a 1% increase in rates having much of an impact on DW8 as a business- and we will continue to grow the underlying business.
What is concerning though DW8 is a publicly traded stock- and our SP is based off of a number of models that algos use to spit out a fair value after taking into account crazy financial instruments (overnight credit swaps, 5Y breakevens, TIPS), not even mentioning basics like 10Y yield and corporate bond yields... End of the day- the SP will be based off of what these funds agree is fair value after weighing risk... & increasing yields is empirically a bad thing for stocks like dw8.
Especially since being added to MSCI world micro index- I'm sure that a lot of our daily volume is algo / fund based trading. Correlation between DW8 and other high growth money losing ~100M MC stocks in that index is just too high for it to be a retail only traded stock- making it seem that there is just buying and selling of the underlying fund happening. Not to mention the nutty SP correlation between DW8 and international high growth money losing micros.
Bright side of the ticket the way I see it- 1. pretty much all high growth smalls / micros are so insanely oversold now. Even pricing these companies as low growth stocks gives them wildly low valuations, it would be really hard to make sense mathematically of further price declines. 2. Unlike other high growth micros, we have the boomer cash cow of a business that is Partons- thank F**K for that. For those unaware- high income low PE companies do well/ at least hold in inflationary environments. As well, it should begin to pad the bottom line in 2 quarters time?? 3. Looking forward into recession situations- given talk now of an impending recession- sales of alcohol is typically defensive during one. I would also stipulate- that in a recessionary environment where businesses/ suppliers begin to see profits drop and have to fight for growth/survival - that they would begin to search for cheaper ways to buy/ distribute their product- essentially having their hand forced in leaving expensive distributors/ sales employees/ marketing & accounting staff *insert DW8 benefits*- making dw8 a necessity instead of just a luxury ( given it does take effort to switch over etc etc).
DW8 Price at posting:
4.7¢ Sentiment: Hold Disclosure: Held
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