A Look At CPS Technologies (CPSH) Valuation After Its US$9.6 Million Follow On Equity Offering

CPS Technologies (CPSH) has filed a follow-on equity offering to raise US$9.6 million by issuing 1,200,000 common shares at US$8 each in a registered direct deal, introducing fresh capital and potential dilution.

See our latest analysis for CPS Technologies.

The follow on offering comes after a sharp run, with a 30 day share price return of 95.21% and year to date share price return of 142.19%. The 1 year total shareholder return of 181.82% points to strong longer term momentum despite periods of recent volatility.

If this capital raise has you looking beyond CPS Technologies, it could be a useful moment to broaden your search with 20 top founder-led companies

With CPS Technologies trading close to the US$8 offering price and sitting above the current analyst target, the real question for you is whether the recent surge still leaves upside or if the market is already pricing in future growth.

Preferred Price-to-Sales Multiple of 4.3x: Is it justified?

CPS Technologies is currently on a P/S of 4.3x, compared with an average of 3x for the US Electronic industry and an estimated fair P/S of 1x. This suggests the stock is pricing in stronger expectations than both peers and the regression based fair level.

The P/S ratio compares the company’s market value with its revenue, so a higher multiple usually means investors are willing to pay more for each dollar of sales, often when they see stronger growth potential or higher quality revenue.

In this case, the current 4.3x P/S sits well above both the peer average of 2.7x and the industry’s 3x level, and also above the estimated fair P/S of 1x. Taken together, this points to the market assigning a premium that could compress if sentiment or growth expectations cool.

Explore the SWS fair ratio for CPS Technologies

Result: Price-to-sales of 4.3x (OVERVALUED)

However, there are clear risks, including a share price sitting above the US$5.50 analyst target and a modest US$30,213 net income on US$32.12m revenue.

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Another View: SWS DCF Flags a Very Different Picture

While the current 4.3x P/S suggests a premium story, our DCF model presents a more cautious view, with an estimated future cash flow value of just $0.07 per share versus a $7.75 price. If cash generation matters most to you, how comfortable are you with that gap?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out CPS Technologies for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Mixed messages on value and risks so far, so if this raise has your attention, consider acting promptly, review the underlying data and weigh the 2 key rewards and 3 important warning signs

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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