SunWorks Inc (SUNWQ)

[ahk6608]

Should you buy this stock at current Price?

I previously looked at a longer term period for this stock.
I used EV (Enterprise Value) where I took cash and debt into account and I started to get into Price sales ratio and how they can help me get a view for the prospects for the stock price for longer periods.

Lets look short term again using Price to sales ratios.


Price to Sales Ratio:
The Price per Share / Trailing Twelve Months Revenues per Share
(last 4 sequential quarters of revenue)

It remains unaffected by dilution as both sides of the fraction are relative to the number of shares.

In the last 5yrs for the solar group we can observe that this ratio has moved within the range:

Low 0.425
Average 1.79
High 3.15

For SLTD:
Current Price $3.48
Shares Outstanding 17.73 (as per last quarterly)

Trailing 12 month Revenues $28.3m
Therefore TTM Rev per Share $1.6

Current Ratio Is $3.48/$1.6 = 2.175

At 2.175 the ratio is above average for the last 5Years so it is difficult to call these shares cheap.

From what point on would we say they are worth buying?

Clearly while we can predict growth in the coming quarters there is little reason for the stock to trade below a neutral valuation.

You can pick your own point to consider as an appropriate level of entry. To me, while we remain in a visible growth phase, I consider as close to the average ratio or below to be the cheap entry point.

In our case Price = Ratio x Sales
So Price = 1.79 x $1.6 = $2.87 (approx.)

You can by the way also calculate the top of the range using the top ratio
So Price = $3.15 x $1.6 = $5.04

We now have a trading range guide for our stock valid for the quarter. $2.90 to $ 5.05

You can do this for the next quarter if you wish.
If you do:

Remember to add q3 Estimate revenue and subtract prior years q3 estimate.

Also make sure to use an estimate of next quarters shares outstanding to calculate your per shares. While the ratio is not affected by dilution the price per share and revenues per share will be reduced as you increase the number of shares outstanding.

(Thus if you know of any dilution coming your way like we do for the 4th quarter it will reflect in the correct manner when you compute your price range.)

This is of course only one very narrow tool I like to use myself to tell me whether the stock is trading cheap or expensive prior to the end of the quarter.