From time to time, in front of your nose is something, which by a closer look is value.
Take DECN as a new starter and exclude for a moment, that the company is involved in settlement discussions which will bring some $’s to the table.
What we know is, that the Strips market share from Life-Scan is roughly 2.5 billion.
1% would be 25 Mio. Now based on the formula from related companies, the Earnings per share model shows P/E ratios from the low 18.50 to the high 43. Some of those companies are not even profitable and therefore have a so called Revenue-Ratio with rather wide spreads as well from 3 up to 6.5
If I am right, then DECN would be profitable with a net-earnings profile of 15 % and taking 1 % market share or 25 Mio, produce a net figure of 3.75 Mio $. If we allow here the low-end of the P/E range of 18 then this would be equal to $ 67 Mio Capitalisation or ratio based on revenues 2.66Breaking this down with 45 Mio O/S then we talk about a stock price of $ 1.40
As we all know, markets are forward looking and those constantly accumulating at whatever price in a very orderly manner, know what they are buying. Momentum will come into the stock, when and why, I will leave open: But as DECN announced recently, the company is preparing itself to move forward not only with 1 product but then as well with something else. As soon as this becomes more visible, the stock and the company will leave the old legacy of a “patent-infringement-stock” behind and enter a new time cycle.
Whatever will be paid from J&J does not matter very much to me, but it will have a special meaning in the market and as well to the media who will certainly cover such an event.
What will be the meaning:
1.) That this little company had the Chutzpa to go against a giant and won
2.) That the settlement figure could present a 3 years average of net earnings (as an example here)plus some damage fees and based on this then the market could and would adjust a growth rate.
3.) That the settlement was a the very low end of the net earnings-estimate which could even add to the momentum as one does not have to be smart to know, that over time DECN would certainly go over the 1% market share.
4.) The company would have cash at hand to finance their announced new business plan and would have no need to tape the market for debt or equity.
Conclusion: At 0.20 it is actually a non-brainer , but it will soon become clearer to all. And frankly I do not care about the dilution as this was visible over the last 2 years and from the recent filing we know where we roughly stand. 45 Mio O/S. But then, how does one think the company would have gotten financed in this legal battle and actually barred from generating revenues? Money is not for free on Wallstreet and therefore those who financed the company will certainly cover their investment by selling. Fine with me: I am not interested on this side: I am interested on the buyers-side and let’s be fair, DECN had no problem to have the selling absorbed in a very very orderly manner. One they this selling pressure will be gone, because DECN no longer will need financing, they will be their own bank.
