Exploring the valuation of TLSS for fun
Disclosure: I am a private investor. I am currently long TLSS. This is not investment advice. Please do your own due diligence and make your own informed decisions.
Since there has been considerable discussion/speculation about valuation of TLSS recently, I thought it would be interesting to explore it from a couple different valuation perspectives. Please keep in mind that I'm doing rough calculations here.
If you take the current 52-week high of $13 (June 2019) and dilute by 50x (~10M shares prior to dilution to current cap of 500m shares due to the warrants/bad debt deals), you get $.26/share. Given their TTM sales and comps in the market as of June 2019 this was likely an aggressive valuation at that moment in time. It was also before the bad debt issues started to gain visibility.
If you take the January prices of ~$3.25 and dilute by 50x, you get .065/share. This price is likely more reflective of the bad debt issues starting to be revealed but no progress on resolving them yet.
If you take last year's high of $13 share, dilute it down to $.26 share and then double it due to the strong growth from 2018 to 2019 alone (approx. 100% growth) and assume they've resolved most of the debt issues, you might be able to make an argument for $.52/share. But if you assume there is still some mess from debt, then maybe you use the $3.25 price diluted to .065 and double it and get $.13. About where we are today on June 18, 2020.
Perhaps one way to think about this is with $.13 as an approximate "floor" and $.52 as a "ceiling".
But...obviously this range is outdated because it does not reflect the strong growth of this year due to COVID/etc, speculation about new acquisitions, stimulus funding, debt resolution, etc. Also, it is unclear exactly how much dilution awaits on the other side of the 500M. Their SEC filings are confusingly worded and we don't know what is going on in the debt negotiations.
Let's assume they have a great 2020. There is some evidence on this in terms of a 49% increase in Q1 sales, the stimulus checks they received, COVID shutdowns likely driving even more significant growth in Q2 than Q1, and some progress resolving the debt issues being announced. So let's speculate that their revenues double again to ~$60M even without acquisitions.
So let's take our floor and ceiling and double them to $.26 and $1.04. But when does the market begin to find those values? That is an unknown. After Q1 results? After Q2 results? After Q3 results? 2021?
We also can speculate that there is likely some more dilution on the other side of the 500M shares in order to help them resolve/restructure the debt/deal with the remaining warrants. Let's say another 20% to 600M shares. That takes our floor to ~$.21 and ceiling to ~$.83. So is fair valuation for this year somewhere between these? Probably.
So, let's consider the acquisition question. It seems clear that growth by acquisition is a big piece of their strategy. But it is hard to do without a higher stock price. One way to think of this is that as their stock price increases (especially as a multiple of sales), their acquisition-driven growth will likely accelerate. This is because most publicly-traded companies get a higher multiple than private ones, e.g. in simplified terms, they can potentially buy $2 or more of market cap for $1 in stock. And, as they acquire more, their revenue multiple increases because they become more of a growth story which lets them buy more companies with less dilution.
To address the if/when/how speculation of hitting $1/share. Does it seem feasible that they could get to a $1B valuation with 1B shares issued? Probably. Let's say it takes a high-but-not-crazy market valuation of 4x revenues which they manage to get because they're growing 100% organically to $60M this year and lots more than that via acquisition. If they take the 400M shares beyond the 600M above and can buy $200M of revenues that takes them to around ~$250M in revenues which at a 4x multiple gets them to a $1B valuation. Could it happen this year? Maybe. I have no idea what their pipeline of deals looks like and also I'd speculate that it depends on the stock price rising to higher sustained levels to fund those deals.
Anyways, that's my exploration of the question of valuation. Hope it is interesting/helpful to some people.
