Based on Comparables, ParkerVision is Worth $4 Million
Based on 2004 sales of $0.44M and 2005 sales of $0.8M, projected annually, we estimate a best case revenue scenario of $1M in 2006 and $2M in 2007. Because ParkerVision has never been profitable, we cannot apply the standard price-to-earnings ratio (P/E), but can only apply the price-to-sales (P/S) ratio. In the past, ParkerVision has enjoyed significant overvaluation:
- in early 2005, the market cap reached $200 million, with 2004 revenues of $0.44M, namely a P/S ratio of 454, while the present valuation has returned to $200M, with projected 2005 revenues of $0.8M, namely a P/S ratio of 250.
By comparison, industry leaders trade at P/S ratios of 1.0 to 6.8, with an industry average of 2.7. Two comparable companies in the RF PA space are:
- RF Micro Devices (RFMD) traded at a 1.5 P/S ratio in early 2005, and trades at 1.56 today,
- Skyworks Solutions (SWKS) traded at a 1.4 price/sales ratio in early 2005 and trades at 1.02 today.
Broadcom (BRCM), which is much more diversified, trades at the highest P/S which is 6.8 on $16.73B of revenue, and a net income of $288M. Based on these comparables and the industry average P/S ratio of 2.7, ParkerVision should be valued at $2.7M today and should trade at $.13 per share, based on 20.91M million outstanding shares.
Finally, given that the entire RF PA market size is around $1B with an expected annual growth rate of about 5%, the market capitalization for a company having 100% market share would only be $2.7B. Even in the unlikely scenario that ParkerVision was able to capture 10% marketshare, the company market value would still only be $270M, namely $12.91. At its current prices, the company is close to its potential peak valuation, with a high risk that if it cannot execute on its predictions, the stock price will decrease. Therefore, an investment in ParkerVision at this point in time is very high risk, for fairly little reward.
Furthermore, ParkerVision stock has a natural tendency to decrease in value when not artificially supported. Prior to a private placement, the stock is usually hyped on the Yahoo Bulletin Board and manipulated to maximize its price. After each private placement (see Fundraising History) the stock quickly drops to $4 or less, at which point the current investors (see Investors section) begin to support it, and gradually manipulate it upwards for another fundraising event.
Assumptions on Revenue Projections
We anticipate that ParkerVision will not achieve a meaningful OEM design win with a large cell phone manufacturer in 2006. Namely, to quote Jeff Parker, the company will remain “in discussions” with their customers, without tangible commitments. Therefore, we anticipate that the revenue for 2007 will not exceed $2M, and that the operating loss will exceed $10M (we estimate it at $15M to $20M based on historical trends). Again, using the comparable P/S ratio, we estimate a fundamental market cap of $5.4M, which correspond to a share price of $0.26. Therefore, the stock at its current valuation of $9-11 is overpriced for the long term.
Furthermore, because the company will need to raise new operating capital, historically around $20-30M in a private placement, not only will current investors suffer dilution (estimated at 10%-20%, depending on the amount of money raised, the discount/warrant deal structure and the stock price), but new investors will most likely suffer future dilution, because the capital infusion will most likely not carry the company through breakeven. Moreover, the company has a low probability of an alternative exit strategy, such as an acquisition, given its past inability to gain interest from any leading chip maker in its market. Based on discussions with existing RF chip manufacturers, it is our understanding that the probability of an acquisition is exceedingly low.
For a company with a consistent 15-year history of failure, including unproven management, poor financial performance, and exaggerated product announcements, ParkerVision is extremely overvalued. Therefore, the potential return on an investment in ParkerVision is breakeven at best, with a high potential of a negative return, if the current dearth in revenue continues.