Aug Net Income, P/Es, and valuations
The problem:
If we receive Aug Net Income figures (possibly next week) how should the figures be interpreted? The Aug numbers will represent another partial quarter, and the company’s Net Income profile is jumping unlike anything that could have been predicted from data that we had as recently as two months ago. Here’s an approach that I have been playing with. Once the Aug figures are in, the analysis below will simplify significantly. I wasn’t willing to do a lot of predicting based on a single (July) special month, but when Aug is also available, I think that the story might clarify a lot.
Data source:
Using published Net Income figures (10Qs and PRs)
Split each quarterly figure into 3 equal (monthly) figures for calculations
Using current outstanding share count of 29,862,000 shares
Assumptions:
New, or changing, high growth companies can see a P/E ratio of 50. This is because their expected future is quite different from their previous 12 months of operation. Mature companies going through “normal” growth usually see a more conservative P/E ratio of 20. Despite AAGH’s good fit with an earned P/E of 50, I will be using the more conservative (lower) Price/Earnings ratio of 20 for the following calculations
You get to pick your own amount of historical data that you feel is now most representative of AAGH’s current position (2, 6, or 12 months of history).
Scenarios:
Predict that the next 12 months of Net Income will be the same as:
- Running 12 months to (and including) Aug (includes 7 months of losses).
- Running 6 months to (and including) Aug (includes 1 month of losses).
- Running 2 month (Jul/Aug) only.
A) If Aug Net Income = zero:
- using 12 month history >> justified share price = $0.30
- using 6 month history >> justified share price = $0.51
- using 2 month history >> justified share price = $0.71
B) If Aug Net Income = $304,854 (half of July’s Net Income):
- using 12 month history >> justified share price = $1.22
- using 6 month history >> justified share price = $1.63
- using 2 month history >> justified share price = $2.03
C) If Aug Net Income = $609,708 (same as July’s Net Income):
- using 12 month history >> justified share price = $2.45
- using 6 month history >> justified share price = $3.68
- using 2 month history >> justified share price = $4.90
If you would prefer to use a higher P/E, just multiply the above share prices by the change in P/E (for a P/E of 40 rather than 20, multiply the above “justified share price” by 2).
rjc
