Hey SkimanI cam close to selling out some of my holding but...

Hey Skiman

I cam close to selling out some of my holding but thought I would crunch the numbers a bit more on this one. While the P/E ratio looks high, P/S ratio of 10 times is very reasonable. By way of comparison Alphabet has traded at <10x P/S since 2008 and has grown into its P/E of around 30.

They did this with NPBT margins of around 25% to 27% of sales. By way of comparison, PME's NPBT margins have continued to expand from 42% in FY17 to a massive 63% in FY21. What is amazing is that more than 100% of their incremental revenue growth ($11m) hit its earnings line ($12.8m) increase in NPBT. So basically they acquired new revenue for basically no margin and/or have been able to strip out costs so more money goes in their pocket. That said, unlike many other companies they capitalise their R&D expenditure ($7.5m) so its not exactly apples with apples. That said NPBT margin only drops to 52% if they expensed it and the way they account for R&D is how I look at tech companies anyway.

Not sure how long they can keep this up because surely those rates are not sustainable. That said with NPBT margins double GOOGL's 10x sales in my book is cheap as long as they can keep the growth rates going. They will do that with growth in market share, growth in customer and using their technology into new verticals.

My only worry is that they are so profitable that surely another competitor will try to get in there and take part of their lunch.