Based on a fundamental analysis of the company's quarterly and half-yearly reports dating back to 2019 (when Dean Taylor was appointed as CEO), it can be demonstrated that the market has been underpricing the company's growth over the past several months. That is, even when ignoring the discounted value of future growth (for which a consensus of users on this forum estimate to be extremely high), the market has not priced in sharp and measurable increases in the company's Profitability and Scalability, as measured in the company's quarterly and half-yearly financial reports respectively.
Perhaps the most crucial determinant for the financial viability of a long-term investment in this company is found in its constantly growing rate of Profitability, which reached ~67% in the most recent quarter. While the company is still not yet profitable (as is the case for almost every young, publicly-listed company in the sector), the Moving Average Change in its Profitability indicates that the company may well become profitable before 31/12/2022. This, itself, is a conservative estimate as the Moving Average Change in Profitability will increase if the company's growth accelerates (which is the consensus estimate, as previously mentioned); thus decreasing the time remaining until the company becomes profitable.
Beyond the Profitability of the company, however, lies a similarly-predictive determinant that is far more undervalued in the short-term due to the company's focus on long-term growth. This focus necessitates disproportionately high spending on human resources as well as real estate lease amortisation. The determinant, Scalability; can be measured in an unexpensed form by the company's Profit on Assets, which is given by dividing Gross Profit by Net Total Assets (which, itself, is given by subtracting Total Liabilities from Total Tangible Assets).
It is important to focus on this measure of Scalability instead of Return on Assets as the latter measure includes the aforementioned spending which will not continue to grow in the long-term as it is growing in the short-term (while Gross Profit will likely continue to grow the long-term as it has in the short-term, if not grow at an accelerated rate). Indeed, this trend was apparent in the most recent half-year, when Net Income only decreased from -$4,597,204 to -$8,614,452 while Gross Profit grew from $79,730 to $4,823,671 (the recent acquisitions, moreover, had not even fully integrated by then).
The graph below speaks for itself but if there is any takeaway from this entire writeup it is that the company achieved ~60% Profit on Assets in the most recent half-year. Not only is this an exemplary increase in the company's Scalability from the previous half-year, it also represents the company's most significant promise of value to long-term investors: the ability to generate Gross Profit relative to its Net Tangible Assets at a rate that considerably exceeds that of its competitors and other companies in its sector. Especially promising is the comparison of the company's Scalability to that of others in the sector who are unable to utilise technology to the same degree. This is evident in the case of Treasury Wines, which only achieved ~20% Profit on Assets in the most recent half-year.
"Businesses, logically, are worth far more than net tangible assets when they can be expected to produce earnings on such assets considerably in excess of market rates of return." - Warren Buffett
DW8 Price at posting:
3.9¢ Sentiment: Buy Disclosure: Held
(20min delay)