Thank you for the question Nick, unfortunately I don’t have a great answer for you on projected ROIC for Payfare:
(1) R&D is the ‘invested capital’ for software companies like Payfare, and it is difficult to classify between maintenance and growth R&D, and
(2) We don’t know what the mature gross or operating margins will look like that this point — it is too early in their lifecycle (operating leverage stage).
That is partly why I did high level (back of the envelope) valuation based on EV to EBITDA.
Although, as a software company, I agree that their ROIC could be attractive once mature.
Sounds like it has a lot of upside but the top line may not grow as much for the next year at least. Lot's of volatility in tech and perhaps other investors are taking that into consideration given how relatively low the Price-to-sales ratio is. Risk it to eat the biscuit perhaps
What’s your sense of their ROIC (on a forward basis)—given the low maintenance capex it seems like the numbers should be absurdly high?
Thank you for the question Nick, unfortunately I don’t have a great answer for you on projected ROIC for Payfare:
(1) R&D is the ‘invested capital’ for software companies like Payfare, and it is difficult to classify between maintenance and growth R&D, and
(2) We don’t know what the mature gross or operating margins will look like that this point — it is too early in their lifecycle (operating leverage stage).
That is partly why I did high level (back of the envelope) valuation based on EV to EBITDA.
Although, as a software company, I agree that their ROIC could be attractive once mature.
Sounds like it has a lot of upside but the top line may not grow as much for the next year at least. Lot's of volatility in tech and perhaps other investors are taking that into consideration given how relatively low the Price-to-sales ratio is. Risk it to eat the biscuit perhaps