Hmmm, I think that is a very negative assessment of their potential profit margin. A meager 10% maximum?! Hmmm
$100k/10k units = ~$10 profit on each unit sold. The normal price per unit is going to be roughly $100. So let me get this straight, you believe that the company will only make about $10 per unit when each unit is getting sold at $100?! I realize that some, part and/or much of their sales will be wholesale and so the margins will be low on that portion of the inventory, however even a 10% margin on just that subset of devices is rather conservative, in my opinion. I think it is quite reasonable to assume that if their cost of goods is about $25 and their cost of sales is $25 and they sell units at $100 then their maximum profit potential is about $50, however I realize that some portion of the inventory will be lower margins based on wholesales so say maximum $25 per unit for those. If we average those profits, its about $37 per unit, so for 10,000 units that would be about $370,000 and remember they have 20,000 units, not 10,000, so for the year, it could at least be possible to make $740,000 in earnings. It's just another guesstimation but I can't imagine it is too far out of the ball park. Also, there will probably be repeat business, with sales of replacement parts, etc. Also that is all assuming they sell only the planned 20k unit inventory, what if they sell all of that inventory just in a matter of a few months? Annual earnings could be much higher. I agree that we just do not really know enough about the operations side of the business, but we can still make guesstimations and I happen to think your idea of a mere 10% profit margin on selling only half of their inventory is overly conservative. Marketing costs could certainly put a dent in these numbers but assuming Cheryl is at the helm of most of the marketing, it could be quite cost effective, using social media and celebrity contacts for exposure, as well as business contacts to make lucrative deals happen. At a nominal P/E of 30, earnings of $500k, with the O/S where it is now that would mean a stock trading at 1 cent in a year. I don't think that is too far fetched. What do you think? Cheers
$RFMK!
