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Who wouldn't want to own MBLX?



June 24, 2010 – Comments (0) | RELATED TICKERS: MBLX

Who wouldn’t want to own MBLX?

Here’s a company with an amazing technology.

Metabolix  (MBLX)

Basically, they make plastic out of plants rather than oil.  This has to be the future of plastics.  Non petrochemical-based plastics that have biodegradable characteristics… Simply amazing!

As Warren Buffett has said:

 “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.  The products or services that have wide, sustainable moats around them are the ones that deliver rewards to the investors.”

So again, who wouldn’t want to own MBLX?  (rknapton shorts the stock, purchases put options, and then raises hand)

The company’s technology sounds great, and maybe the company could be worth a small speculative bet… until you see how much money they are losing, combined with an astonishing P/S ratio.  The future potential earnings premium being given to this company by the market valuing the company at $400 million is just crazy.

How much money are they losing?  Well since 2007, their annual revenues have been declining from almost $1.7 million, down to just over $1.4 million in 2009.  And for these revenues, they consistently have an operating loss of over $30 million annually.  Ouch.

Do they have a “moat” with their proprietary “stuff” (microbial fermentation system to produce a family of polymers known as polyhydroxyalkanoates under the Mirel name)?  I don’t know, but it’s not as if other companies are not also already making proprietary bio-based renewable plastics.  Here’s another company, Cereplast that already has more revenues and doesn’t lose as much money (although I’m not recommending this company either).  I’d expect many more companies will be doing the same thing a decade from now too.

Hopes Dreams and Aspirations.

Let me provide a historical example that I think is fairly similar to how MBLX is trading at a price of over 300 times their revenues.

From “The Focus Investor”, by Richard M. Rockwood:

(writing about… you know, it had something to do with the “Internet” and that is going to change the World, so it had to be worth a lot right?)

“Based on its price at the end of its first day of trading, its market cap reached $841.8 million.

Lets examine just how insane this market cap was.  The company reported $2.7 million in total revenues for the nine months of 1998, compared with just $415,000 posted a year earlier.  Its net loss widened to $11.5 million for the same nine-month period, compared with $2.6 million the previous year.  These financials indicate speculators were willing to pay $841 million for a company with a measly $2.7 million in revenues and no profits anywhere in sight.”

So yeah, we know what happened to investors in  Will MBLX that is trading at a market cap of $400 million, for their measly $1.4 million in revenues have the same fate?

I’m counting on it.

On a positive, the company does have a decent amount of cash on their balance sheet… But considering the shareholder dilution that is happening, I’m not worried about it.  From Q1 09 to Q1 10, their share count has gone from 22,975,459 up to 26,536,924, for an increase of 15.5%.


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