Peter Lynch warned investors against ideas they could not illustrate with a crayon. But Peter Lynch was investing before Shockwave. Here's an idea that needs to be animated. Pretty flash...
The market thinks so. Plexus, a manufacturer of wellhead equipment is trading at an impressive growth valuation:
A wellhead is the infrastructure at the surface of an oil or gas well that holds the drilling equipment. Plexus designs, manufactures and rents wellheads to operators of jack-up surface rigs used by exploration companies.
Introduced in 1997, the company says its patented POS-GRIP technology is simpler, safer, cheaper, and quicker to install than that provided by established suppliers. It hopes to establish POS-GRIP as an industry standard for the whole exploration and production industry, including volume production and sebsea wells, by developing and licensing the technology to other manufactures.
Since, in the company's estimation, the market is worth over $2b a year, Plexus could easily surpass the £140m valuation investors give it. The question of course, is, will it.
This year's results bode well, with sales up 28% and profit over 90% as Plexus gained new customers, its first licensee, and, often driven by more regulatory supervision after recent drilling disasters, the company says demand exceeds its capacity to supply wellheads.
Any fool can see the growth potential, attaching a value to it though is likely to perplex us.
About the author
Richard is companies editor of Interactive Investor and a columnist at Money Observer magazine. A keen private investor through his Self Invested Personal Pension, he manages two virtual portfolios. The Share Sleuth portfolio is a hand-picked collection of mostly small-cap value shares, while the Nifty Thrifty is a mechanical portfolio designed to pick large, successful companies at cheap prices.
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