Looking back at my old valuation, I'm pretty angry at myself. Totally guilty of 'curve-fitting' -- bending the assumptions to get a result that was more in line with the market.

The previous valuation at the time looked stupidly low.. now, not so much!

I'll leave the previous text below so you can see just how aggressive i needed to be to make the $21 valuation stack up. But given what's happened I'm paring things back..although the irony here may be that I'm simply doing the same thing again!! (ie. tweaking assumptions to get a figure closer to the market price!!)

Aaaanyway.

Let's keep this simple.

Let's go out 5 years to FY2029, at which point we'll assume a top line of $200m.

That assumes something like ~22% CAGR in revenue from FY26 after a flat FY25.

And let's go with a 15% net margin to get a FY29 NPAT of $30m.

I'll assume a bit of modest dilution to get a share count of 90m, and therefore an EPS of 33c per share.

A PE of 35 gives you a target price of $11.55, or $7.17 when discounted back at 10%pa.

(there's that false specificity I was talking about in the other post..)

If i boost the net margin to 20% and the terminal PE to 40, I get $11.03 using the same approach.

If I use a net margin of 10% and a terminal PE of 30 I get $4.13.

I could also change the revenue growth -- even just assuming a CAGR of 20% instead of 22%, and using the original assumptions, I get $6.76.

So... *licks finger and stick it in the air*.. the true intrinsic value is probably (maybe?) somewhere between $4-12.

Let's go with a nice round number of $8 -- pretty much in the ball park of what other members have come up with.

Valuation aside, I think AD8 is a great company with a good chance of significant growth over the next 5-10 years. And for that reason i think the current share price is in the ballpark of fair value. It's probably not the kind of stock you want to be overly fussy with in terms of price.

I'm taking a small position on SM today with the available cash I have.

Prior valuation from February 2024

Assuming gross margins stay the same (71.8%) and taking management's guidance at face value ("growth in US$ gross profit consistent with historical performance"), I will assume a FY24 revenue of $96m -- that'd be 38% top line growth.

Let's be bold and assume they sustain a very strong pace of growth at 25%pa for a FY29 revenue target of ~$300m. And we'll give that a net margin of 20% because I'll assume they continue to scale well and enjoy a good degree of pricing power (current net margin assuming full tax is about 8.5%).

That's $60m in Net profit in five years time.

I'll thumb suck a PE in FY29 of 50 (again, I'll be ambitious because of company quality and growth potential) and assume 85m shares on issue to get a target price of $35.

Discounted back at10%pa that's a current valuation of $21.

This is all pretty rough obviously, and I'm probably guilty of 'curve fitting' here to arrive at a price that helps make sense of how the market is currently pricing Audinate.

When I play around with other assumptions, I can sensibly arrive at anything between $15-$35 (which shows you how a few small tweaks to multiple or growth assumptions can really move the needle), but what's useful here is that you get a sense of what you need to see for AD8 to be considered good value today.

i.e. Roughly speaking, top line growth that sustains at least ~20% growth for many years, with expanding operating margins and no major dilution. And, of course, a market that is prepared to sustain a decent growth multiple.

I think they have a good shot at it, and could easily surprise on the upside.

But they did say that acquisitions were on the table too, so these forecasts could easily be way off for a number of reasons. But it gives me a general line in the sand.

Updated: January 2023

Just a thumb-suck valuation, and a few hypotheticals, to help put a line in the sand.

FY22 sales = $46.3, EBITDA $4.3m

Shares on issue = 77.2m

So a 10x P/S = $6 per share. That's equivalent to a EV/EBITDA of 100.

These aren't timid multiples. But perhaps you can even justify higher ones at present if you expect sustained and significant growth, plus attractive net margins at maturity.

As usual, when you start playing around with a variety of assumptions, you get a wide range of outcomes.

Management say they want to double revenue in the "medium term". Let's call that 3 years, just as an exercise. And let's again apply a P/S of 10 to get a FY25 share price of roughly $12. Which is about $9 when discounted back by 10% per year

Let's say after 10 years, this is a business doing $500m in sales, at a 20% margin. At that point, let's say annual growth is closer to 10%. That could justify a PE of 30 at that point.

With no extra share issuance, that equates to a net present value of $15 when discounting back at 10pa.

As with most growth-oriented valuations, most of the heavy lifting is done quite a number of years out. But what it shows, to me, is that there is indeed value IF the company sustains a high pace of growth and scales well. But in the meantime, it's going to look very expensive and will be at risk of serious pullbacks whenever there is a slight hiccup.

And, of course, if these growth expectations are not realised, investors will likely get burnt. EG the $500m in sales in the scenario above represents something like 27% in compound top-line growth for a decade. Audinate could sustain a very impressive 20%pa for a decade and only be on sales of $290m. It'll need a very chunky market multiple at that point for current investors to do well

So the asymmetry of return outcomes aren't quite where I'd like them to be.

Given the quality of the business, and the network effects it seems to enjoy, I'll go with $90m in FY25 revenue, and $10m in NPAT.

A P/S of 8 or a PE of 72 gives a market value of $720m . I'll assume a bit of share issuance and use 80m SOI, and then discount back by 10% per annum to get a valuation $6.76.

As always, the real valuation could be a good 20-30% either side of this. But i'd certainly be a lot more interested if shares were around $7