No. of Recommendations: 13
I like AYX with its high gross margins of 91% combined with its accelerating 59% revenue growth. With an EV of 5.8B and forecasted full year sales of $375M, they trade at a reasonable 15.5 times this year’s sales. Those concerned that we are using forecasted full year sales instead of TTM, note that AYX is already more than 75% complete with the year as their year-end is 12/31. In February, they will come out with forecasted sales for next year, so then the EV/forecasted sales will drop even further.

Taking your idea a bit further, why stop at EV/FCF? What we should really consider is *potential* EV/FCF, so we don't ding companies for investing back into growth. We can argue what we should use to calculate potential FCF, but I think we can agree it's high for a company with 90% GM. In the past I've penciled in 30%, but that could be really low.

Let's say AYX ends 2019 with 390m revenue (the 375 is already up from their original estimat of 350, so I think they will raise it some more). Then if they grow 50% in 2020 (a slow down, but not much) they end with somewhere close to 600m in revenue. At that point, if we give them a FCF margin of 30%, we get about 175m - 180m of *potential FCF*.

At even a price to potential FCF of 56 (using TEAM's EV/FCF), that puts AYX at a valuation close to $10 billion (vs $6.4 billion today).

If we consider that maybe AYX is still growing at 45%+ at that point, perhaps they deserve more.

This is all very back of napkin, but it's encouraging enough!

Bear
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