"Valuation? Humbug. Logic? We don't need no stinkin' logic. Just look at that stock go!"
If Applied Energetics
Why did it happen? The jump boils down to a single contract announcement. On Wednesday, Applied Energetics (which you may recognize better under its old moniker, "Ionatron") announced that it has won a cost-plus contract worth as much as $9.3 million to develop "a classified system for the U.S. Marine Corps." The stock promptly blasted off.
But is that a reasonable reaction to the news? The numbers suggest not. AE shares have risen $0.52 from their pre-announcement close on Tuesday. Multiply that by 80.6 million shares outstanding, and you'll find that the stock is now worth $42 million more than it was worth earlier this week.
All that on a $9.3 million contract … that may not even be worth $9.3 million, because that number is the "ceiling value" of the award. And even if it does max out, that refers to $9.3 million in revenue -- not profit.
So basically, investors just anted up 4.5 times forward sales on the new contract alone, and infinity times profits -- because for as long as it's been in business, AE has never made a profit, no matter how much it booked in sales. You have to admit that this seems a little delusional. AE's closest publicly traded analog, Motley Fool Rule Breakers recommendation TASER
Today's price spike is exciting, sure. But not all that's exciting is wise. Or Foolish.
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