Fair Valuation for the IFL??

I don't put faith in market caps becuase the stock market can be so irrational & emotional (in my opinion).

How would you do your valuation of the IFL?  The market cap is currently $53.5M.


Here's my take.... finance guys weigh in.



Current IFL Valuation

Accurately valuing the IFL is extremely difficult due to the newness of the company, a lack of comps, a lack of positive cash flow, a lack of positive net income, and no pro forma information available from the company leadership.  As well, it is very difficult to speculate on future earnings given the dynamics of the MMA industry. 

Market Cap – The IFL’s market cap as of 6/6/07 is $57.78M.  This is based on a stock price of $1.08 and roughly 53.5M shares outstanding.

 Comps – ProElite, Inc has a market cap of  $599.47M based on a stock price of $14.  However, ProElite, Inc has a business model that draws revenue from two subsidiaries: a traditional MMA promotion, and a “Web 2.0” social networking website for the MMA community.  The UFC is not a fair comparable, as they have reached profitable operations (with over $200M annually in ppv revenues) and are the market leader.

Net Asset Valuation – Valuing the IFL per the value of their net assets (from latest IFL 10-Q) results in a valuation of $7.86M.

Other Methods – A valuation based on cash flow or income multiples is not useful in this case due to the lack of positive cash flow or net income.  A DCF approach is not applicable as it is far too speculative to develop a reasonable financial pro forma for the IFL given the fact that the company is facing a high probability of bankruptcy in the next 52 weeks.  Even applying a “general” multiplier to gross revenues presents a non-accurate view.  With annual revenues of $2.36M in 2006, a bullish multiplier of 3.3 would have to be applied just to reach a company valuation equal to that of the net asset approach. 

For the reasons noted above, I believe a rational value of the IFL falls well below the current market cap and belongs in the range of $25M-$35M, with the premium beyond net asset value coming from the distribution partnerships and brand equity.