Do you guys think it is a good or bad idea to pitch a small-cap stock with no comparable companies?
On one hand you can make the argument of “No one else does this and very few analysts cover the stock. Therefore, the market has mispriced the situation for XYZ reasoning.” The parts that sucks is that you have no other companies to compare it to and deem it undervalued. I’d think a DCF model would really be the only way to value it, unless you’re going with the LBO approach and want to do a whole case study on operational changes/restructuring, which is not the case for me.
It's rare for a target company to not have any comparbles. While a target may not have any identical or similar comps there should be another comp within the industry that can be used. If there are imperfect comps available its better to use them then to ignore a comps model altogether.
If you can share the name and ticker of your target maybe we can assist in suggesting comps.
What's the company? I have a feeling there is something close enough, even if they are not perfect comps. Plus, I doubt DCF is the only way to value it. If you tell us what it is, we could help you decide which multiples could be appropriate.
The company is PCOM. They operate an exchange for all sorts of rewards and loyalty programs, with airline miles being their bread and butter. No more unused miles going to waste or ending up with your miles spread across dozens of different credit cards!
I'd say go with a DCF and do a comp on multiples that are relevant to another companies multiples even if they are doing similar and not the same exact thing. I think the pitch would go well especially if you present the comp data effectively.
Looking at Morningstar there aren't any direct comps for this target. I would use imperfect comps in the airline industry that operate in the e-commerce space. Priceline, TripAdvisor, Expedia and Orbitz
While these comps do not share the same product/service they are all e-commerce sites related to the airline industry. Better to use these then to not use any comps.
You could try looking at Multiplus and Smiles - these are 2 publicly traded brazilian companies that manage airline rewards programs, working with South American airlines such as LAN and Gol respectively.
Take a look at AIMIA on the TSX. The company was spun off Air Canada, and I believe it was the first listed airline rewards companies.
Perhaps don't restrict yourself to airline reward comps. Take a look at other rewards-type companiesm if applicable, such as voucher companies (Edenred comes to mind).
Look at companies with a similar financial model and/or customer base and then justify a discount/premium to those multiples
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