Message Font: Serif | Sans-Serif
 
No. of Recommendations: 2
TF

I see you haven't received any feedback yet so I'll give you some. First, although I have this stock on my watchlist, I don't follow it real closely. They just haven't been able to generate the top line growth to get me real excited. Seem like a one-trick pony (nasal strip).

On to your valuation. Well, I am quite impressed if this is truly your first attempt at valuation and you aren't sandbagging us:) This is a good company to learn on as the F/S are quite straightforward. Good that you back out interest income from your calculation of SFCF as it is non-operating and can't be counted on going forward. Also, I checked the I/S and I don't see any one-time items and the earnings appear to be fully taxed. And good job on picking up on the Dfd taxes.

As for the 12x-15x multiple that you applied to SFCF, that is a little high for this company IMO. With a company that is only growing SFCF by 4% or so, you probably want to use a range closer to 6x-8x. I have seen TomG state before in a post that he uses a multiple of 133% of the SFCF growth rate, all else equal. See the attached for more insight into TomG's reasoning.

http://boards.fool.com/Message.asp?mid=20363859&sort=username

Overall, I would agree your valuation is fairly conservative, aside from the 12-15x multiple. It may be a bit optimistic, though, to assume that all of the SFCF you project will be rolled back into cash. Seems like companies always find a way to waste money. However, I don't know mgmt and they may be good stewards and prudent allocators of capital. In summary, I have again seen TomG state that he looks for a double in 3 years to compensate him for the risk of investing in small caps. Given that threshold, CNXS may look somewhat attractive but there are probably better opportunities out there with a higher likelihood of achieving 2x in 3y. As I said in the intro, if this company can find a way to unlock top-line growth, I think it would trade up quite rapidly.

Best,
Parkite
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.