As a fundamentally and valuation driven investor, I am continuously amazed at some of the equity valuations the public market bestows on growth companies, even in an age of near-zero interest rate borrowing conditions.
So for those valuation-driven readers, let me present the first of what I will simply call “guess the valuation.” I present you with financial metrics and you tell me how much you think a growth investor, at most, should be willing to pay in total equity market capitalization terms.
Before the comments start coming, understand that I am fully aware that this exercise is overly simplistic and one would want to have more data before answering such a question. Humor me please to play along, and feel free to give the company below the benefit of the doubt (within reason).
Unidentified Company X
Financial results for the first 9 months of 2019
Revenue: $1 billion (+50% yoy)
Gross Profit: $600 million (+50% yoy)
R&D Expenses: $250 million (+50% yoy)
Marketing Expenses: $350 million (+35% yoy)
General/Admin Expenses: $125 million (+60% yoy)
Operating Loss: $125 million (-35% yoy)
Operating Cash Flow: $20 million (N/M)
Okay, guess the equity value assuming zero net debt on the balance sheet…