Share Price Calculation

I have been looking at the share price conversations over the last week, and trying to put together a simple picture of what it should be compared to where it sits at the moment using the P/E ratio. I work in the technical world; my mastery of accounting is about the same as my grasp of Mandarin, so if somebody could drag out their green pen and audit my figures, I would be grateful.

Alexium is at the stage in its life where the share price represents as much of the sizzle as it does of the sausage, and to get some idea as to where we are, we have to use forward projections, rather than trailing figures.

Taking the recently released CY16 forward projection baseline figures:

Revenue: $18.5M

Margin: 30-60% (let’s take the middle – 45% after tax profit)

Shares: 286M

Earnings: 18.5M x 45% = 8.325M

EPS: 8.325M/286M = $0.029

An established company with a small growth rate has an average P/E ratio of 15, giving us a share price of 43.5c; our current share price gives a P/E of around 20.

Some forms of P/E analysis seem to use the growth rate as a multiplier in the ratio in companies like AJX (so a growth rate of 25% should give a P/E ratio of 25). Alexium’s growth rate is expected to be far higher than this, but what is the actual growth rate we should be looking at? The second half of last year was over 900% according to the figures, so that is clearly not a useful number in this context. The expected explosive nature of AJX may preclude this from being a reasonable form of estimate, but if we throw a growth rate of 25% in there, the share price should be around 72.5c.

From the above, it seems a 60c share price seems to be the compromise we have reached with Mr Market, where the sausage is in, but the sizzle has been damped down for the moment, as people absorb the information provided in the half yearly reports.

Comments, anybody?