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Tom Shaughnessy is a MicroCap analyst focusing on extremely under-the-radar companies. Tom's focus is technology companies, with a strong emphasis on management teams, the opportunity for viral growth, low institutional ownership, high margins and high recurring revenue. Tom ... more

SecretCaps’ Updates Memex Projections: $1.06 Price Target

Date: Wednesday, August 17, 2016 5:30 PM EST

 

Memex’s Recent Results:

It’s been a fruitful week for Memex (MENXF, OEE.V). Following stellar projected Q3 results (104% Y/Y in revenue and a gross margin expansion to 72.5% from 50.4%), the company released news that Pioneer Products Inc has placed an initial 11 machine order for MERLIN enterprise edition and that both TECT Corp and AeroFit LLC, current Memex customers, expanded with follow-on orders. This post was released first to PRO Readers last week.

Updated Projections:

I tell every MicroCap investor, “Get the story right, and the financials will take care of themselves”. In this case we humbly believe that we got the story right, and now its time to update our financials.

Screen Shot 2016-08-04 at 11.57.05 PM

Revisions:

Assuming a 50% Q/Q revenue growth rate in Q4, we have revised our revenue estimates downward for 2016 from $4.16M to $3.43M. With Memex’s strong sales ramp underway (53.5%, 42% and 104% Y/Y revenue growth in each of the last 3 quarters, we believe this is conservative.

We were pretty close in our 2015 revenue estimates, only off by ~$80K, and we projected a gross margin of 69.3% in 2016 overall, which is below the projected 72.5% GM for Q3 2016. Granted annual is blended but it will move towards this rate.

For reasons we will describe below in more detail, we have projected 200% sales growth Y/Y into 2017 and 2018 based on modest increases in op-ex (Ciscos agents reselling, SaaS model packing 72.5% GM’s, development completed as Memex is commercialized), and see the company doing$21.4M in revenue in FY18′, up slightly from our original projections of $21.08M.

Projections:

We decided to go with a more specific valuation method: the enterprise value / revenue multiple route versus just the simple price to sales route. Software Equity Group releases detailed updated statistics on the SaaS industry (see below for a snapshot).

Granted Memex had a ~6x EV/Revenue multiple in 2015 and 2016 we’ve discounted this down to a more conservative 4.5X based on SEG’s research. The difference between 6x and 4.5X is a large discount too in our opinion, as its the number multiplied against total annual revenue.

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