Hey Getitgogone,
As you can tell from my comments on the other site, my criticism has primarily been focused on Stover. Perhaps I'm being slightly unfair, but I do believe he's done shareholders a disservice by giving away stock at such low valuation levels. The problem now is that there's about 10mm shares including options and warrants. I don't give the company much credit for the cash on the balance sheet as the company is cash flow negative.
I also had a problem with Q4 and repeatedly tried to educate people through my posts. There were a number of posters on the other site extolling the virtues of that quarter given the reported positive EPS. For anyone with a basic understanding of accounting, they would have realized it was a bad quarter and the positive EPS was only due to an accounting gimmick. Revenue growth decelerated dramatically, operating losses widened and cash flow was steeply negative. I think Stover knew he had a bad quarter to report and he rushed to get a bunch of offerings done at higher prices. Perhaps this was smart on his part, but he's alienated a lot of institutional investors (and there aren't that many that will traffic in a name like this given the small market cap). I think that's one of the reasons why the stock can't hold any gains on "positive" PRs anymore.
At the current valuation, it's trading at about 2x trailing sales (again, I don't give them credit for the excess cash nor do I believe the market will either). That's not cheap for a company with negative operating EPS (excluding all of the gimmicks) and negative cash flow. Let's say that he can grow revenues 50% this year. That puts the company at $20mm in revenue. Put a 3x multiple on that and it's a $60mm market cap. That equates to about $6/share in an upside scenario. Keep in mind, he only grew revenues in the low 20s in Q4, so 50% would be a sharp acceleration. Certainly plausible given Aetna and UNH, but far from certain. Just because those insurers cover the tests doesn't mean that doctors will order the tests.
In short, the problem for the stock is that he's diluted the stock so enormously that it will take a huge amount of revenue growth to generate upside. Moreover, it's highly likely that he will have to raise more equity to achieve the revenue growth I'm suggesting given insurers are notorious for beating up suppliers like this with extended payment terms (see what's happened to companies like ADPT recently).
Where could I be wrong? Well, he could boost profitability more than I expect. That said, with 10mm shares outstanding, net income is being amortized over a much bigger base now.
I am watching the stock. I think it's merely a trading vehicle...fine to buy in the low $2s and sell in the low $4s. Rinse and repeat.
Let me know your thoughts when you get a chance..
Renegades17
