Firstly, thanks for taking the time to put some numbers together on SP3. I would just like to address a few things included in your number crunching.
1. The shares outstanding
You have kept the share count at 106.3m, which is fine assuming the company doesn't raise capital. (I personally think they will, but I completely understand someone's calculations that they won't need to). The issue moving forward is that there are currently 6.5 million total options outstanding, with call prices ranging from 5 cents to 9 cents (off the top of my head). We can assume atleast 3 million are in the money right now and will be exercised, raising the share count.
The change in shares outstanding will obviously affect the valuation measures you have applied in this case.
2. Company is not yet profitable and cash flow negative. So can only really use a revenue multiple.
I personally disagree with this statement. I think the most important focus for companies that are CF negative is becoming CF positive, and hence the measure to value these companies would be from free cash flow generation. In my analysis, I used an FCF-yield, which compares the level of cash flow to the price (or market cap) of the company.
*I've taken the following excerpt from the research report on SP3;
*The focus here is based on the free-cash flow generation, particularly given the company is currently not generating self-sustaining profits. For me, I think this type of ‘speculative’ investment would require a FCF yield of something between 6-10%, given a 3 year investment horizon.
I used to sit and think, how do I value cash flow negative companies given that I can't apply a P/E ratio or EV/EBITDA multiple because the company doesn't generate any form of earnings yet......
I think the use of an FCF Yield, or FCF generation is a super important way to value such companies and it is a more thorough way of valuing the company, given a certain level of risk.(I.e a risker investment commands a higher level of FCF yield).
The issue with valuing companies on a revenue multiple is that its a mere guess to what the market will apply to this company. For example, if you change the mutiple to 4 x revenue instead of the 3 x you applied, we get a valuation of 0.22 cents. This is a 33% difference from the 16 cent result you had.
I don't mean to criticise this measure by any stretch, more point out its flaws. I personally would never part with my money in the form of an investment on the basis of a revenue multiple.
Again, thanks for taking the time to put your thoughts on the value for this company!