Originally Posted by
blobbles
That is why I use price to sales to indicate value of growth companies, factor in growth trajectory, potential market size/saturation, competition and current profitability. A rough set of rules that gives me a decent gut feel for their future.
With my comparison of DIL, they have a shrinking growth rate (seemingly saturated market?), decent competition (possibility of price war), and a price to sales of 5+. Now you may say" but they are delivering a profit", which is true, but to me that doesn't gel with their line of wanting to use their cash for increasing their market share. Why not have a huge sales team at least? Whereas for ATM, they are delivering on that same line (increased growth as they become more profitable).
The market for A2 is huge and it is a premium product (higher margin) being aimed at rich markets. It has zero competition and decent IP for the near future. And a price to sales today of 3.3 with increasing growth. Of other growth companies, that's not bad.
XRO=30,big market, entrenched competition, big growth
DIL=5,medium market, decent competition, low growth
WYN=24,big untapped market, low competition, medium-high growth
PEB=(not worth stating), tough market but huge, average competition, unknown growth
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