In comparison to TPW and KGN, RBL is cheap on MC/Rev times ratio.
In addition, RBL draws more than 60% of its sales from the US while TPW and KGN are domestic focused.
Can you see RBL becoming the size of Kogan in due time?
If you want to invest in small caps, there are small caps with proven technology and established marketplace with business traction and you don't need to buy lofty promises like BRN and YOJ, RBL is just twice the market cap of BRN but with $349m turnover !! BRN has zero! ASX small caps with massive valuations
Distortions, according to Spheria Asset Management portfolio manager Marcus Burns, have led to a massive increase in the number of small caps trading on an enterprise value (EV) to sales ratio multiple of over 10 times.
A company’s EV is worked out by adding together the market cap and debt and then subtracting cash on hand.
“The number of stocks currently trading in Australia with an EV to sales multiple over 10 is almost 200 shares,” Burns said.
“To put that in context, that’s about 10 per cent of the number of shares listed in the Australian stock market, so it’s a really massive multiple.”
https://unauthorised investment advice/wp-content/uploads/2020/09/EV-to-sales-multiples.jpg
ASX stocks with market cap >$50m and EV/trailing sales multiple over 10x. Source: Spheria Asset Management, Bloomberg
“In normal investing parlance, an EV to sales ratio of say five or six is actually considered pretty fully priced and an EV to sales ratio of 10 or above is considered really rarefied, and it would be reserved for stocks with incredibly high growth rates, incredibly big margins, and really not something you’d see that commonly,” Burns said.
This has given rise to a phenomenon where “the less you earn, the more you are worth”. So the stocks that have negative operating cash flow have outperformed those with positive operating cash flow.
https://unauthorised investment advice/wp-content/uploads/2020/09/Smaller-companies-average-return.jpg
Smaller companies average return over 12 months. Source: Spheria Asset Management, Bloomberg
This in turn has seen microcaps and small caps outperform their much larger counterparts since the start of 2019.
“On the one hand, and the red line there (above), are stocks that actually lose money at the operating cash flow level, and on average over the last 12 months, they’ve returned a whopping 110 per cent, which is an astronomical number in anyone’s book,” Burns noted.
“Positive operating stocks are those on the blue line and their average return over the last 12 months has been 20 per cent, which is nothing to sneeze at. But you can see that, very bizarrely, the money-losing stocks have actually materially outperformed.”
In particular there has been a “dramatic outperformance” by the microcaps, according to Burns.
Microcaps have outperformed small caps by 20 per cent since early May this year.
https://unauthorised investment advice/wp-content/uploads/2020/09/Microcap-performance.jpg
Performance by market cap sector. Source: Spheria Asset Management, Bloomberg
Firetail Investments portfolio manager Matthew Fist says the opportunity in small caps is “immense and it’s now”.
“Small caps are beneficiaries of change and COVID has created material tailwinds for small companies, in many cases accelerating structural shifts that were already underway,” he told the Pinnacle Virtual Summit.
