P10 Industries Inc. (PX)

[Tim Eriksen]

Sorry if it upset you in any way, but valuation based on a multiple to cash is not taught in any finance class. If the market used it, companies would issue stock since every dollar raised would be worth many multiples.

If PIOE was valued at 12 times cash they should issue shares for cash even at a discount since the market will value it at 12x. For example if they are currently worth 12x the $0.12 per share in cash and they issued 20 million shares at $1.20 (a discount) they would raise $24 million. If you think valuation is based on a multiple of cash the company would now have $36 million of cash, or $0.33 per share (36/110) and the new value would be $3.76 per share (12 times $0.33).

A couple of other reasons the thinking is flawed. If they paid down debt would the value of the company decrease? If it is valued at a multiple of cash it would. If they added more debt their cash would increase and by your line of thinking the value would increase 12x for every additional dollar of debt.

What about dividends? Paying a dividend would be terrible capital allocation since the cash dividend would only be worth what was received, while the same amount of cash if it were still held at the company would be worth 12 times.

Hope this helps.

Cash on hand matters in valuation. It is just not the primary factor. The primary factor is cash flows. Stocks work the same as bonds or real estate. They are valued based on the future cash flows.