Hi @at6568, valuation of companies which are in the very early...

Hi @at6568, valuation of companies which are in the very early stages of profitability, or which are not yet profitable, is very difficult as every company is different in so many respects.

I always try to estimate how they are likely to go in the next year or two, and beyond. I think it is a bit easier to do this now that AMS is already profitable. We can get a good feel about growth rates and the how margins are likely to change based on costs growing at a lower rate than revenue. As some of my recent posts try to do, NPAT in a year or two can be estimated with some degree of confidence. That enables me to then look at likely future ROIC, ROE, P/E etc. I think this is much better than looking at current EBITDA or Revenue ratios.

In my Post #: 55493104 on 23 August, I estimated NPAT for the next 2 FYs. At 10.9 in FY22, forward ROE and ROIC would be around 17% (already very profitable) and P/E would be around 30. At 15.1 in FY23, ROE and ROIC would be around 24% and P/E around 22. Is this good value for a company with the characteristics I outlined in my Post #: 55536331? IMO, yes, very good value - providing nothing from left field happens which would hinder sales and margins. Although AMS is leveraged on the way up, profit decline can be fast when sales decline or margins increase. So, it's important for all investors to form their own opinion on the future and the risks.

Another angle is if AMS gets to ASX200 size and high profitability levels, which I think likely over the next couple of years, it would bring in many new investors who limit themselves to highly profitable companies. This includes institutions, who will cause the price to rise as they try to get in.

So rather than try to value AMS today, I look at what it might be valued at by end FY23.