Growth is rarely achieved by itself; it usually stems from upfront costs previously paid by the company, such as R&D, hiring salespeople, or marketing expenses. Not all companies actually pursue significant growth, as such businesses may value low business risk, strong earnings power, and dividend-paying capacity, and are not willing to (temporarily) cut back on these goals to generate growth.
Generally, company executives—at least in Finland—speak quite openly about their plans, and management’s target-setting has a strong signaling value. If Easor announces that it is pursuing significant growth and the growth investments required for it, I believe we should take them at their word and, due to the costs of acquiring that growth, expect very low earnings for the coming years.
This year’s EV/EBIT or forward P/E are best suited either for peer analysis or for a mature, deeply profitable company, because they do not account for value creation generated by growth or longer-term profitability changes in any way. Therefore, they are not really suited to Easor’s current situation at all, and I would consider using them to be a lapse in judgment.
Although Finland has traditionally been a dividend stock market—and this is in the small-cap end, where mispricing is extremely common—I wouldn’t subscribe to the idea that future growth isn’t paid for here. Historically, we have had so few growth companies that the lack of alternatives has typically caused Finnish investors to overpay whenever a company shows even a glimmer of promising future growth prospects.
Reaching a share price of €0.25 as the fair value of the stock truly requires some kind of complete dumpster fire. For comparison, Atte uses a figure of €1.6 in his own DCF model. Although rising interest rates reduce the value of future growth, in a situation like this where the company utilizes financial leverage and has very reasonable valuation multiples, even with quite modest expectations it is easy to end up with a share price of, say, €1. There will certainly be surprises along the way, as is part of investing, and the range of outcomes is exceptionally wide at the moment, but such rough expectations require, in my opinion, stronger justifications than those presented.