Saturday, June 22, 2013 11:40:35 AM
Never a guaranteed outcome but I would argue that COVR offers the possibility of a huge upside gain with minimal downside risk. Listed below are a few (of many) possible scenarios. I will not give a probability of any one scenario occurring because it would merely be a guess.
SCENARIO #1: MULTI-BAGGER
- the majority of the current customers sign 5 yr. upgrade/renewal contracts
- new customers (5 yr. contracts) are added at a slow but steady pace
SCENARIO #2: HUGE % RETURN (at least a double)
- at least 1/2 of the current customers sign 5 yr. upgrade/renewal contracts
- occasionally add a new customer (5 yr. contract)
SCENARIO #3: 50-100% RETURN (or more)
- company is acquired by a larger player
SCENARIO #4: TREADING WATER
- # of renewals/upgrades is disappointing
- struggle to sign new customers
Going forward in the event Scenario #4 takes place my question would be, "considering that they already have signed 9 customers how much lower can the valuation be?"
From an investment standpoint what makes this situation so attractive/interesting is that a great deal of the downside risk no longer exists. The risk was greatest when they had zero contracts for the new system/products.
Also the performance 'bar' for a really nice upside gain is not all that high/difficult to meet.
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