Upon initial review, Lemonsoft seemed like a fairly sexy SaaS software development company for which one could easily justify high valuation multiples. In practice, however, growth is mostly generated through acquisitions, and organic growth is weak, at least at the moment. With ROE around 15%, a valuation level of P/B = 2 could be quite justifiable. However, the current valuation is almost double that, so the stock doesn’t seem very attractive in that regard.
On the other hand, almost half of the personnel work in R&D, which significantly impacts profitability. To balance that out, it would be nice to see some organic growth or at least hear about better-integrated products. Furthermore, security issues certainly don’t make this any more of an attractive investment. Does anyone have any insight into what the R&D staff is currently working on?
At least the debt level is in good shape, so even larger acquisitions could be possible. One might dare to leverage a relatively steady business more heavily without financing issues. However, the product offering would likely become even more fragmented, or at least that’s how it appears based on my research.