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Investing

DXN – Initial Investigation

Today I received an email suggesting that DXN might be worth investing in as they’d tripled sales recently. I’ve never heard of this company, so I thought I’d do a (VERY) brief investigation to see if DXN warranted a full investigation as to whether I should invest.

DXN have recently raised 5.9m, and spend 2.7m on a new data center. Market Capitalization (MC) is $9.45m, cash receipts are $2.1m for the most recent quarter. If we multiply that by 4, to make it a year, that means that revenue will be about $8.8m (nearly 1x MC).

However, looking at the finances, it seems that the past 3 quarters are only $3.57m, meaning that prior to the recent success, annual revenue would have looked more like $2.2m ($3.75m – $2.1m = $1.65m for 3 quarters; $1.65 / 3 = $0.55m per quarter; $0.55 x 4 = $2.2m).

Therefore we need to be sure that the revenue generated in the most recent quarter is not front-loaded, one off, or some other arrangement. As DXN make and operate data centers, it’s hard to know the answer to this question (perhaps I’ve missed it in their reports – if so, please leave a comment below).

Because I don’t know the answer to the above and have no interest in investing in companies where it’s not clear to me how the path to profitability looks, I won’t be doing much more analysis than this (except listing the remainder of the info I discovered that haven’t yet wrote about). Here follows the rest of the info I found on DXN.

They are also doing a lot of cost cutting and debt restructuring to move closer to being a self sufficient company.

At this point I stopped reading when I realised that their recent CR was at $0.01, as this suggests that the share price could (but possibly won’t) fall back closer to this as people cash in, and also (more importantly) that’s what the company thinks it’s worth to get investors to stump up with the money.

Summary

No value found (it’s a tad expensive, and it’s difficult to value a business that’s not profitable, with no clear path to profit, and appears to be raising capital from shareholders to sustain the company). That said, this might be a good investment for someone willing to accept a higher level of risk (this is too much like gambling for me). Perhaps DXN could become a good investment in the future as the numbers become more clear. Probably needs a more thorough investigation than small amount of time I gave to it.

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ASX

DXN Limited (ASX:DXN)

More information on DXN Limited…