Editor’s Note: Director of Trading Anthony Summers has already shown you how powerful his Value Meter system can be… but the most recent example is especially impressive.
In early October, Anthony gave a presentation on The Value Meter at The Oxford Club’s Private Wealth Seminar in Massachusetts. One of the stocks he highlighted, financial technology company Dave (Nasdaq: DAVE), had a Value Meter score of 1.15, indicating that it was on the cusp of being “extremely undervalued.”
Since then, Dave’s stock is up a stunning 150%.
Congratulations, Anthony, on yet another great call, and congratulations to any Wealthy Retirement readers who were in attendance and bought shares of Dave.
– James Ogletree, Managing Editor
The space economy has had investors seeing stars lately, and Planet Labs (NYSE: PL) is riding that wave of enthusiasm.
This innovative company, which operates the world’s largest fleet of Earth-imaging satellites, has seen its shares rocket from below $2 in September to over $6 recently as investors have gotten swept up in the growing demand for satellite data.
The excitement isn’t without merit. Planet’s constellation of over 200 satellites takes photographs of every inch of Earth’s landmass daily, providing critical intelligence to government agencies, agricultural companies, and environmental organizations. Think of it as Google Earth in real time, but with much more frequent updates and specialized applications, ranging from crop monitoring to climate change tracking to defense intelligence.
Recent results show a business gaining momentum. Third quarter revenue hit a record $61.3 million, up 11% year over year, while gross margins reached an impressive 61% – up from 47% a year ago. The company’s customer base grew 4% to 1,015 organizations, with an impressive 97% of contracts representing recurring annual revenue.
Even more encouraging was Planet Labs’ progress toward profitability. Management recently expressed confidence that the company will achieve positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) next quarter.
The contract wins keep rolling in too. Planet recently landed a nearly $20 million deal with NASA, alongside contracts with the U.S. Department of Defense and multiple international governments, including Brazil and Germany.
Its latest satellite, Pelican-2, which incorporates Nvidia’s advanced Jetson platform, is ready for launch, and its new Tanager satellite is already opening up exciting commercial possibilities in environmental monitoring.
But here’s where The Value Meter helps keep our feet on solid ground.
The stock appears relatively cheap, with an enterprise value-to-net asset value (EV/NAV) ratio of 3.46, versus the industry average of 7.89.
However, there may be a reason for that lower multiple: Planet has consistently burned through cash, with its free cash flow averaging -2.82% of its net assets over the past year.
While this cash burn is better than the -18.76% average for similarly unprofitable companies, it still suggests Planet needs substantial growth to justify its current valuation. The company’s $242 million cash pile provides a decent runway, but the path to sustained profitability remains uncertain.
In fact, even though management has significantly reduced operating losses (adjusted EBITDA loss shrunk to just $0.2 million from $12 million a year ago), the company remains unprofitable.
For all of Planet’s impressive technology and growing market opportunity, the current stock price seems to have blasted a bit too high. Investors appear to be pricing in flawless execution of the company’s growth strategy while overlooking the near-term challenges of achieving consistent profitability.
The Value Meter rates Planet Labs as “Slightly Overvalued.”
If you have a stock you’d like me to write about in a future edition of The Value Meter, let me know here.