azpete0, to further elaborate on a few points:
1. Dilution: if the rate of dilution exceeds the rate of increase in net income, the EPS DECREASES and that is NEGATIVE GROWTH.
eg: If, in 2003 a company has a net profit of $100 and 100 outstanding shares (hypothetical) the EPS is $1. If in 2004 the net profit increases to $200 but the company now has 400 O/S shares the EPS decreases to $0.5 - this is what has happened to NMKT when you compare the 2003 and 2004 annual results.
NMKT's number of shares O/S (Fully diluted) increased from 19.5 million in 12/03 to 108.32 million in 12/04. (BTW, did you notice that the number of Authorized shares increased from 100 million as of 9/30/04 to 300 million as of 12/31/04)
2. PEG is used to compare the P/Es of different companies in different industries. It evens the playing field so to speak. For a company to justify a P/E of 100 (like NMKT) it needs to have an EPS growth rate of > 100% (not negative growth)
eg. Company A (a tech firm), with a P/E of 50 but a growth rate of 100% is undervalued; but company B (a finance firm) with a P/E of 50 and a growth rate of 20% is not. In other words the EPS growth rate determines whether a company can justify a certain P/E or not.
3. Sales/Revenues are not important at all important if a company is not generating profits/cash flow (from Operations). When you say cash is king the 'cash' refers to Cash flow not sales. NMKT's cash flow (from operations)in 2004 was a meagre $268K - compare that with $149.8K in postive cash flow in 2003 with 1/10 the total revenue. So it's not like were overflowing with cash. But that may be expected when a company is expanding so I won't consider this a negative for NMKT.
4. When you say "NMKT is growing by leaps and bounds" you mean NMKT's revenues are growing by leaps and bounds. Wall St unfortunately does not consider that growth - in stock lingo 'growth' implies EPS Growth (and that doesn't happen if a company's net profit increases 200% but their number of shares O/S increases by 300%)
I agree that NMKT has future 'potential' - but you cannot quantify 'potential'. In order for NMKT to help shareholders quantify their potential, they need to offer guidance regarding future earnings, not revenues. I agree that may be difficult at this stage, but without that I cannot determine whether NMKT is undervalued or overvalued at a PPS of $0.53.
If NMKT is listed on the AMEX (like we all hope), it will become a member of the 'big boys league' - if and when that happens you will not have the luxury of comparing NMKT with other OTCBB Stocks. Once on the AMEX, we will have to justify our share price in ways I mentioned above. Simply growing revenues by 500% or 1000% will not do.
I'm just a concerned long like most of you - I want NMKT's share price to appreciate. But it's performance over the past year (or two) - in EPS terms - does not justify it's current share price, let alone any increase from here on.
To justify a share price of $0.53 and a P/E of 100, NMKT's 2005 (annual) EPS should increase atleast 100% over the 2004 number which translates to a net profit of $1.15 million (assuming no further dilution). Although this seems within reach, if the total number of fully diluted shares incrases to 216 million (from the current 108 million), the net profit will have to increase to $2.30 million to justify the current share price and P/E value.
Makes investing in stocks all the more interesting doesn't it?
- NC
