Hey Rich, I think we all get your point--you've mentioned this in your last 4-5 posts on this board. Were there TOXIC SHARES? Most likely...but that is old news. They are already included in the outstanding share numbers. Very little dilution is happening under CEO Melissa Rice's watch. In the last 10K it referred to her as the Chief Executive and Principal Accounting Officer. She is building a solid company... fixing accounting errors and and disclosing information for all to see. No more surprises.
The existence of these shares could well be the explanation why the stock is trading at these low levels, but also the reason why I now own more than a percent of the company. I've not been buying my shares to flip out at a dime or even a quarter. I believe DRG is becoming the real deal. I believe in their long term success. Could I be wrong? Sure, but I don't think so.
A friend of mine (and fellow DRG long) said, there only a few reasons to sell your shares:
1) You need the money. This is usually the worst time to sell
2) Your predetermined stops have been hit. This can be good or bad, but stay disciplined.
3) Your gains make your portfolio too lopsided, so it is time to diversify.
and my most important
4) your reason for having the stock in the first place is no longer valid.
My reason for buying this company's stock has not changed. In fact, the more I see and learn, the more I like it.
Who knows, what these shares will eventually be worth? I'm convinced the current price is no where close to their current or future value. Right now we're trading at a market cap of 1/4 of our sales. As sales increase, we may well be trading at 1/8 of current revenue. Crazy.
Maybe the easiest measure will be once we start earning net income. We've been EBITDA positive for the last several quarters. This means that presently investment is being made in infrastructure and product development that will show their worth in future quarters. As was stated in their conference call, DRG doesn't have need to raise investment capital. I think Melissa's words were, we are well able to grow from current cash flows and profits. POINT: the company isn't selling and doesn't need to sell shares. The stock price will take care of itself. As DRG makes progress I am convinced that SMART MONEY WILL FIND THE VALUE.
I may be overly optimistic, but I think they could quite easily be worth $4 or $5 in the next 5 years. How so? Well, just run the numbers:
2007 Revenue $20.1 Million Net loss -$2.9 Million
Year 1 2008 Revenue $50 Million Net Profit $5,000,000
Year 2 2009 Revenue $100 Million Net Profit $10,000,000
Year 3 2010 Revenue $150 Million Net Profit $15,000,000
Year 4 2011 Revenue $200 Million Net Profit $20,000,000
Year 5 2012 Revenue $250 Million Net profit $25,000,000
Using a PE ratio of 15, which I think would be low...this sort of net income would warrant the following share price:
2008 EPS .056 x PE of 15 equals $.84
2009 EPS .111 x PE of 15 equals $1.66
2010 EPS .163 x PE of 15 equals $2.44
2011 EPS .222 x PE of 15 equals $3.33
2012 EPS .274 x PE of 15 equals $4.11
Finding a company that's growing and is going to succeed is really the trick to successful investing. Finding them before the crowd is how the most serious money is made. Very few of us are going buy and sell at just the right time. Heck, if I would have bought all my shares at the optimal time, I'd own approximately twice as many.
The company is cash flow positive. That means means their business plan is working, and the beauty of it is that it is scalable. If they were able to grow revenue as they have over the last year on a shoe string budget...just imagine what they're going to be able to do with increased cash flow and profits. My revenue and net income tables could quite easily be eclipsed.
At some point they are going to turn a profit...will it be Q1, Q2 or Q3? I don't know, but anyone with eyes can see their potential for success.
