LED - will these light up the portfolio?

Tijuana32:

This is a long term growth play. No doubt about that. I would advise against trading it in the short term because the market maker/broker will always win through the commission that you pay them and spreads.

With this in mind, I will repost an earlier analysis I did on it, which assumes a growth rate of 250% between last year and this year rather than Hoodless Brennan's 50%. I feel this is more in tune with what will actually happen. Small companies normally tend to grow highly aggressively in the beginning and then slow down. There was a 300% increase in turnover for year ended June 06.

£1=HK$15.2

Year Ended June 2005: (Pro-rata calculation from 16 months)
Turnover: $33m
Profit After Costs @ 23% margin: $6m

Year Ended June 2006:
Turnover: $102m (+300%)
Profit After Costs @ 27% margin: $28m
EPS: 1.4 pence

Year Ended June 2007:
Est Turnover: $250m (+250%)
Est Profit After Costs @ 27% margin: $68m
EPS: 3.4 pence

Historic P/E: 18p/1.4p = 12.8
Forward P/E: 18p/3.4p = 5.2

You can supplement this with a discounted cash flow analysis (calculator available here: Use an EPS of 0.014 and a growth rate of 250% for 2 years and then 0% thereafter. Using this, we can get a current valuation based on just 2 years growth at about £1 a share. Take DCF analysis with a pinch of salt though.

If you find my 250% excessive, use a more conservative 100%, and you will find the forward P/E is still about 8-9. In any case, it is still good value.

It is an AIM share, therefore is as risky an investment as you are going to get. However the possible reward compensates for it. I am bullish about this stock for the next year, which is why I have put it in my StockChallenge.

A very useful thing to do would be to only look at RNS news every day and not the stock price. That way you avoid panic and making irrational decisions. Hold this for a year and I think you will be well rewarded.