Tuesday, October 21, 2008 11:36:34 AM
First, my bad about not coming back in here last night; I dozed off.
Now, to elaborate on just that one contract alone, RRLB forecasts to have Net Earnings of .005 per share. Let’s see how they derived this forecast from the PR below:
http://biz.yahoo.com/iw/081020/0444315.html
Revenues – Net Expenses = Net Earnings (Income)
With Net Expenses being unknown, we know that we can derive Net Earnings since they gave us a 45% Net Profit Margin. This means that from considering the $15 million in Revenues multiplied by the 45% Net Profit Margin we could derive a total which would be the Net Earnings and the difference would be the Net Expenses. See below to evaluate the calculations…
$15,000,000 x .45 = $6,750,000 Net Earnings
$15,000,000 - $6,750,000 = $,8,250,000 Net Expenses
Revenues – Net Expenses = Net Earnings (Income)
So…
$15,000,000 - $8,250,000 = $6,750,000 Net Earnings
Net Earnings ÷ Outstanding Shares (OS) = Net Earnings Per Share (EPS)
$6,750,000 ÷ 1,388,393,409 (RRLB OS) = .00486 Net EPS
Rounded = .005 Net EPS
Let’s go to the Industry in which nutritional supplies are sold within the ”Drug Related Products” Industry within the Healthcare Sector:
http://biz.yahoo.com/p/5conameu.html
As you can see, that particular Industry has a 30.60 PE Ratio. The PE Ratio is the “Price to Earnings” Ratio that reflects the growth rate of similar stocks trading within a certain Industry and/or Sector within the market. As one see from reviewing the above Industry’s PE Ratio, we can logically use the PE Ratio of 30.60 as the growth rate to use as the multiple for the Industry in which RRLB would trade to multiply with the Net EPS to derive an accurate fundamental potential valuation of where RRLB should fundamentally trade from this GNC contract alone:
30.60 PE Ratio x .005 Net EPS = .153 per share
This means that given the logic that was deduced from above, RRLB should fundamentally be trading somewhere in the .153 per share range based on its potential from this GNC PR below:
http://biz.yahoo.com/iw/081020/0444315.html
Even if you considered using a conservative 12 PE ratio, you would still have a per share price as indicated below:
12 Conservative PE Ratio x .005 Net EPS = .06 per share
The above share prices are all based on potential, but keep in mind that the #1 reason why we all buy a stock is because of its potential. I am not sure what the actual valuation price is for where RRLB should trade, but I am sure that given the things that they are now doing that it is much higher than where it’s trading at now.
v/r
Sterling
Sterling's Trading & Investing Strategies:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=29867262
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