Is This Space Firm Set To Blast Off

At an annual conference some years ago, a Berkshire Hathaway shareholder asked Warren Buffett how it was possible for smaller investors to rival his own performance and track record during the 1960s, which was his best period. He corrected the questioner and commented that, in fact, his best years were prior to that in the 1950s when he averaged gains closer to 50% annually.

He went on to say that those gains are not available to him any more because the law of large numbers has caught up to him. Or in other words, when investing massive amounts of capital in the tens of billions, the opportunities to find mis-priced assets are rare. But he did give away a secret for investors with smaller amounts of capital willing to roll up their sleeves.

Buffett shared that, when he was starting out, he used to scour Moody’s reports to find companies that were clearly undervalued but which nobody was examining. The information was all there but no analysts were covering these smaller companies so they were ripe for the picking. So, are there any stocks these days that fall into the bucket where they have small market caps and appear to be on sale?

Key Points

• According to Warren Buffett, small cap stocks are a prime location for investors with less capital to find mis-priced assets.
• One small-cap stock now trading at a low price-to-sales multiple is Planet.com, ticker symbol PL.
• Slow sales growth and high cash burn have penalized the share price but long-term prospects still remain positive.

Space Stock Trading Near Cash Value?

Planet Labs has experienced tremendous selling pressure since going public at $10 per share via SPAC. Now trading nearer $2 per share, early shareholders have seen almost 80% of their wealth go up in smoke.

Now with a market capitalization closer to $600 million and about half of that in cash on the balance sheet, Planet’s operations are valued at about 1x sales, a very reasonable figure given the double-digit percentage growth rates.

The concerns among shareholders at this time surround the cash burn, which is substantial and hit $50 million last quarter. That’s a concerning number if it is sustained but management has offered assurances that costs are being cut and sales is a priority. If the losses can be kept in check, the future for Planet may well be bright, particularly as the company improves its products to make them easier for customers to use.

Is Planet a Buy?

At this time, Planet is substantially undervalued according to analysts estimates with fair value sitting just shy of $5 per share, suggesting close to 150% upside opportunity if realized.

The tradeoff now of entering the stock is between cash burn on the one hand and cash flows on the other leading to future upside. It’s very much a case of how you view the glass, half full or empty.

Conservative investors will probably want to skip this space stock but those with an eye for value and willing to take on a bit more risk have the potential to see material upside in the coming years from present levels.