Gosh, there's more than a hint of speculative tone on this thread! I'm reading a lot of price targets and not one attempt to quantify the price on any fundamental basis.
I'm a big believer in the Trophon EPR, and over a multi-year period I think it will achieve sales and profits which will ultimately justify the price. However, the ~75% price gain over the past 6 months leave me feeling as though the market has overshot the mark a bit. Not that i'm complaining, I'm up 75% in 6 months!, but I'm finding it hard to uncover risk adjusted value at this price.
Back in May last year, when I decided to invest in NAN, I did so on the basis that it was ~$200m company and by my conservative forecasts would achieve FY15 sales growth of around $26m which would leave it just shy of breakeven. Subsequent years, would achieve similar sales growth with most of the additional gross profit flowing through to profit (ie: there would be a high degree of operational leverage).
Recent price rises have increased the market cap to around $356m, significantly reducing holders future potential return.
If I'm optimistic, and assume overhead costs will increase in FY15 by CPI (say $21m), then NAN needs to achieve a gross profit figure of ~$19.5m (the difference being interest income and R&D incentives)
Over the past four reporting periods, NAN has achieved the following GP margins:
31-Dec-12: 67.38%
30-Jun-13: 52.42%
31-Dec-13: 61.83%
30-Jun-14: 67.19%
In there interest of conservativeness, I'll assume NAN will achieve a 65% GP margin for FY15. From these figures, I calculate that NAN requires a sales growth rate of around 40% just to break even in FY15. So, you're paying $356m for a company that will basically make nothing. Sure, it's got good growth prospects, but at current prices, buyers are being asked to pay a hefty premium for them.
The problem with a stock like NAN, is that it's effectively a growth story, and it's nigh on impossible to accurately forecast it's sales growth rates. I was happy to assume a 20% growth rates as I deemed it an appropriate margin of safety. Assuming growth rates of 40% and more is very risky.
I always treated this stock as a speculative position, and so I'll continue to hold and see how the story plays out. I certainly wouldn't be buying in at current prices though.
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