SITO Mobile Ltd (STTO)

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Price Target $8.60+

SITO reported $9.6 million in revenue for fiscal year 2014, $11.3 million in revenue for the first 9 months of fiscal year2015, and we believe they will report in the neighborhood of $17 million in sales for 2015. We believe the competitive advantages of SITO’s technology and business model position the company to successfully capitalize on the $25 billion + mobile/smartphone advertising market opportunity ahead of it. We believe that at a minimum 50% revenue growth/year and margins > 50% are realistic for the foreseeable future.

With the recent sale of Millennial Media (which had negative sales growth and -54% profit margins) at $250 million, we see SITO as undervalued at the present $85 million market cap.

Being conservative, at an average 40% revenue growth over the next three years, sales would reach $47 million, or approximately $2.89/ share. Applying a modest price-to-sales ratio of 3 for a high margin, high tech company with patented technology experiencing > 50% revenue growth…we see a share price exceeding $8.60.