Let's try to work out a target - base.
To put a possible value on DECN the best is going forward step by step.
1.) The estimated size according to Global Data: the entire monitoring market will reach $12.2 billion by the year 2017. As a point of reference, in 2010, the test strips themselves accounted for close to 90% of the total market value. Therefore, over $11 billion will be up for grabs in 2017 on the sale of test strips alone.
2.) According to a report compiled by industry and Roche analysts; Roche controls 29.1% of the blood glucose market, Lifescan 26.5% (Lifescan is owned by Johnson and Johnson, JNJ), Bayer (OTCPK:BAYRY) 14.6%, Abbott (NYSE:ABT) 14.6%, and all others 15.2%. In order for one of these companies to gain momentum in developing countries it is necessary for them to drive down price points and to offer a more affordable option.
3.) Which way will DECN take to penetrate the market? This is up to the management of course, but besides selling directly through the “growing” online channels, the will sell through the know Retailers and they as well will negotiate with interested parties that will sell then under a private label brand.
Taking the 2017 market size of 11 billion and the 26.5 % market share from Lifescan we are talking about a direct potential of 3 Billion under control of Lifescan (J&J) It is obvious that DECN would target those clientele. But the question is: What is probable and what is possible. As one wrote in an UK Forum, 10 % for Lifescans market share would be a non-brainer and I give credibility to this voice as it must be an Ex Janssen guy who understands the market mechanism.
So if we leave the 10 % as given we talk about 300 Mio Revenue but for sure to buck would not stop here as DECN could as well expand into other territories and as well offer – besides strips – something else. We should not forget, that DECN if blessed with funds from the J&J case would be in a position to act debt free and therefore create enough velocity to expand rather rapidly.
But all this kind of speculation has attached so many if’s and when’s that it would be wise to concentrate on the obvious one, the 10 % or the 300 Mio Revenue Base. If reached – and markets have a tendency to visualise certain targets long before actually reached, DECN could fetch a market Cap of $ 450 Mio (1.5 times sales or 15 times net profits if I keep 10 % for this item)
Then we have to come back to the O/S question. If and when DECN can count the money from J&J then it is clear the dilution party is over. No need for further issuing shares as they could refinance themselves easily and even start a buy-back program.
So based on my model: DECN with 60 Mio O/S once everything is over and 450 Mio capitalisation would be equal to $ 7.50 per share.
If and when DECN has enough cash in their Treasury to finance their pipeline, they could use part of the surplus to repurchase shares (like Apple and others are doing because there is no better use for their surpluses) This of course would then throw the mentioned stock price target over board. The question is: What does DECN want in 3 years. I would say, the management is not that young anymore to stay on board for xx years and this of course could then mean, that a well driven and cash rich DECN could become a very attractive bright for some.
Having said all this: From my point-of-view, DECN offers (once the J&J case is out of the way once and forever) a very very substantial upside. Whatever will be paid into the Treasury will be considered Cash per share. Figures are ranging between $ 12.5 Mio but then up to $ 120 Mio if all is figured in. My take is, that we are going to end up with at least $ 1.—in Cash and from there on the party will begin and the market will start to figure in the possible revenue base within 3 years.
For every market student going back 50 years the saying goes: Gee why wasn’t I around when this stock was cheap. Well I will tell you, some would not have bought it because at that time nothing was perfect and to many if’s and when’s. And so it happens every day: We see something and despite we are in a position to make a cross-analysis and can see the potential even if we attach a 90 % discount to the market potential, we quarrel about this and about that and then walk away. But this is not the stock market. A cheap stock presents something the majority cannot see or doesn’t want to see and from my point of view, it is good so otherwise everything would be priced at perfection and then nothing is left on the upside.
Conclusion: It is obsolete to dream of targets but it is right to figure out a high probability of price within the next 3 years and $ 7.50 is certainly not that speculative then.
A final note: Nobody from us knows what Kind of Settlement will take place; in Dollar Terms speaking. There are various possibilities. But of importance is, that enough Money is in Play to make DECN an outperformer in 2015.
