DEFINITIONFor the younger folk and new to investing...
P/E Ratio simply stands for Price to Earnings ratio...
What is it's aim? It is simply a measure to value a share price relative to how the company is performing in terms of what it earns. So if the P/E Ratio is darned high...either this means that the company's shares are way too expensive OR the growth prospects are enormous. This is where YOU need to make a decision and work out what is the case. Note: I have seen companies that have stupid P/E Ratios that have so much growth potential that these ratios still made sense at the time, Ie the Share Price had still a ways to go!
Here is the formula:
So what do we have....We have No earnings ...we do have a Market Value for Share ...we can come up with some plausible P/E Ratios.
IT'S NOT THE BE ALL AND END ALLWhen valuing a company it is not prudent to rely on
one formula...a whole gamut of ratios and measures should be used.
EasySell is right, I am conservative. I don't want to rely one just one product the company produces. I don't just want to press the BUY button if
one formula looks good. I want the smorgasboard..a buffet of rich formulas that mostly, if not all, look wonderfully delicious. Do we get such opportunities in life? Rarely...but you know what I think about PAR and her formula's.
mmmm where do I start? I want all foods formulas to stack up! At least most of them...*wink*TARGET PRACTICE
Now I hate putting on targets cos it's just so hard to come up with them. There are so many shifting variables and events...bedding down just one event is hard enough for the company let alone me! Who knows how the Covid thing will play out in the future, it could have some impact on the trials for instance...Example: I had no clue Victoria would go for a stretch of close to zero cases to closer to 100 cases in just a few days...ugly. Imagine all the other possible hurdles and clearances we have to undergo.
So take all that I calculate here, with a large bag of salt.
CALCULATION
Righto...enough theory let's come up with some v rough estimates.
A good steady P/E Ratio for a mature company is around the 20 mark...
For a company with huge growth prospects you'd have to ratchet this up higher...perhaps 40? But you know me...Im Mozz..I go conservative..if we get those higher echelons then I'm all the better for it, right? I think of it like Christmas when I was young..I expect maybe just one or max two pressies..If I get more, then magnifique! When you are young and haven't lived a silver spoon kinda life, anything wrapped is pressie enough!
Ok I digress..onto the calcs I promise.
SO
We first have to come up with an estimate of Earnings. New Guys, Earnings ain't Revenue, if it was I could just simply plug in my Total figures from below into the formula. Earnings is basically Profit...Revenue less all expenses. So let's come up with a low ball figure..Let's say it is just 20% I would expect it to be higher....
To further complicate it we are expecting a distribution deal which means we will only keep a % of the revenue so strictly we can't just use the figures straight off the table....perhaps we could for certain jurisdictions..but we want to keep this fairly simple, and fairly high level. SO let's assume we halve the Totals.
Let's get out our spreadsheet out first:
Now we will halve the Totals:
ok let's now apply a straight 20 P/E ratio to the TOTAL figures by year:
SO going back to the formula,we are calculating the unknown...ie lets call it 'y'
So we get y onto the one side by itself, Yes
AbsentFriend, I could've been an algebra teacher)
Which can now be written as:
Ok easy...now we take each total by year and plug it through the formula...I'll do the first year here and then the rest we can see in the table below:
2021 Year
20 is the P/E Ratio
Earnings Per share is 20% x half of the Total
SO the formula is
20 x 20% x 50% x $5,205,000 = Market Value of all share! (divide this by the total shares on issue to get an individual share price)
Wait Mozz....err that only computes to $0.046 Err that's 4.5 cents..Mozz our Share Price today itself was $3.50?!
Yes Paradigmers, this is the premium the market is placing on us...why? Because of the sheer growth prospects. The calc starts to make more sense as the years go by, as our earnings increase.
Oh and one more thing before I show you the final table...if we do get a big Pharma deal, yes we won't get to keep the full 100% revenue BUT we will get up front cash injection and milestone payments..I haven't factored that in either, so you can easily add some sort of premium to the below figures. In the figs below I have shown a couple of different incremental P/E Ratios, very conceivable to get more as our sales really ramp and the wider investing community realise just what we have!
THE RESULTS
If we get anything like what Michael Goldberg. (Collins St Value Fund) suggested then the share price indeed will be much much higher.
Others, definitely feel free to add/subtract your thoughts and your own calc's.
Realistically? I can see us being at around $7 - 10 at the end of this year...perhaps $20 plus by the end of next year...and easily $35 by the end of 2023 IF all goes to plan. Now don't hold me to these figures, don't print this off and stick it to your fridge. As i said I don't like to come up with specific targets, very hard to get right. It's all highly spec and I'm sure many others can come up with better estimates, better rationale and closer to the actuals than me! Things can change..things can get delayed, conversely a really Big Pharma deal a few months after we start the 3rd Phase and all bets are off...we could accelerate our SP to a great extent. (I'll buy a new fridge at that point and a new car)
DYOR is best policy. I'm not a soothsayer.
(20min delay)