skc
Goldmember
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- 12 August 2008
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SKC, looking at your example of DTL, you appear to have a grave misunderstanding as to what drives the market to pay it's p/e multiple on a company.
It has taken me all of 5 minutes to identify why DTL trades on a historical p/e of 12:
- DTL has been profitable for 9 years - since 2002.
- In that time, revenues have increased from about $100k to $700m - a 7,000% increase.
- Before partying on the above, consider that after 9 years, they have only a NPAT of $15million
- This shows that after 9 years they are managing a net margin after tax of a whopping 2%
- The above should ring alarm bells. Quite simply, there is not enough fat built into the business to survive a substantial downturn in the business
- Obviously from the performance, this is not a growth stock. The management also believe this, or they would not be paying out such a huge dividend of 77cps (and those dividends won't last long at all!)
- This is why the market pays only12 x earnings. DTL is in effect a high volume, low margin operation and is valued as such. Kind of like how a distributor is valued.
- TZ is at the position DTL were many years ago when starting out, as in effect the TZI business was reset with the board changes. I doubt a single shareholder or management believe that they need a shocking 9 years (like DTL) to make a NPAT of $15.
- As for understanding P/Es, if TZ becomes just barely profitable and earns a single $1 in the current year and the share price hits $1 (market capitalization of $125m), then the p/e will be:
EPS 1/125,000,000 = 0.0000000080
P/E = $1/0.0000000080 = 125million!!!
So, as you can see, valuing a company based on a p/e alone is nonsense, as in the above situation TZ would have moved from a $7 loss to $1 in profit, and end up with a p/e of 125million! Such an increase in earnings over 1 year and the company being worth $125m certainly wouldn't raise any eyebrows, and would probably draw in investors.
However, by your logic, it would be millions of times overvalued!
Good luck with your investing!
Yes you are quite correct. I should have seen the alarm bells straight away.
Total share holder retrun p.a. for last 5 years.
DTL (the alarm bell) = +30.2%
TZL = -29.4%
Clearly DTL has returned so much there isn't any potential left, while TZL has much higher potential.
And it is a proven fact that you've made very accurate predictions and analysis of TZL... how can I have doubted you?!
Now if TZ capture this 'several'% ('5'%) of this market by 2013, it would mean that TZ would generate around $3.8billion in 2013.
So if we assume that 1/3 of this $3.8billion is our net profit (could be higher as Intevia is a very high margin product), then we have a net profit of $1.27 billion.
$1.27 billion / 70million shares (Increase on current registry) x Forecast P/E of 40 (Tech average for mature company - Google has a p/e of 50) = Share price of $726 US
Either way we end up with a share price in the hundreds and likely hundreds times current share price.
I remember reading that you believe TZL will be the most valuable company in the world. I only wish that I had followed your posting and bought in at $5 in 2007... oh well.
