It depends 100% on where you believe the company is in the innovation and business cycle.
1. Early in an innovation/business cycle you can only value on the subjective measure of potential. this is highly subjective and you tend to compare to similar companies to come up with a figure. We also look at cornerstone investors, directors, who holds what etc to estimate reliability of information. The risk of the product or the business failing is high and essentially we are gambling at this point.
2. Once the product is judged to work in a Lab we start looking at possible market size, market share etc and we still subjectively value it on potential, but the risk of total failure of THE PRODUCT reduces. i.e. the innovation risk drops, however the business risk is still there and may increase as funds to commercialise the product are required. Later any sort of certification further reduces the product innovation risk but not the business risk
3. Once the product is trialled with a real customer and is judged to work in the real world it is intended for, (this is RAP's problem at the moment), the predators start to circle, normally a Cap raise is required for sales and marketing etc which attracts those sophisticated & institutional investors, (read profit takers at this point). We tend to still be subjective in our valuation, however the product risk is now minimal and the business risk is what we look to value on now.
4. Once sales start flowing we value based on uptake and real sales success, but traditionally the company still has not made a profit so we still include potential, this is where a T/O will occur or a large "investor" may get involved and a value may be struck on their valuation (normally low balled). Also the stock may be added to indexes which attract insto's who are looking to add it to their holdings at minimal cost. Shareholding also starts changing from retail to Insto's and the shorters come out to play by borrowing insto stock.
5. Once revenue and costs start flowing as per a normal company the analysts start looking at covering and the market values on their input, however if retail investors think there is still potential they will take the stock higher (i.e. look at A2). At this point look to analysts or viewpoints who actually have looked at whats happening in the customer base or from people who are customers, this determines how successful a product is. Also look for competitive response to see what competitors are doing. Frequently this is where retail holders take profit and move on.
6. After several half years the company will now be valued on sales/reveue/margin etc as per normal companies, potential at this point has been removed and rep[laced with reality, this point traditionally has a dip in Share price as the company transforms from an innovator to a normal company.
Where is PCK, it is at 4 for the adult app, but at 2. for the child app, that's why this coy is so hard to put a value on as it has a pipeline of products. So i would be valuing it a sales and recurring revenue multiple with a premium for the child app (which has a market size vastly bigger than the adult app)
PCK Price at posting:
13.0¢ Sentiment: Buy Disclosure: Held
