Shareholders of Audinate Group Ltd (ASX: AD8) have been laughing all the way to the bank this year. Despite warnings of a global recession sparked by international trade wars and geopolitical uncertainty driving volatility in equity markets, the share price of the digital audio company has still surged over 100% higher to $7.21 since January. The company's shares even set a new all-time high price of $8.66 in June.
A closer look at Audinate's recent performance
FY19 was a banner year for Audinate, with the company reporting a 44% uplift in total revenues to $28.3 million for the year ended 30 June 2019. But what was even more impressive was the stellar 249% rise in operating cash flows to $3.6 million and the astronomical 395% increase in earnings before interest, tax, depreciation and amortisation to $2.8 million. The fact that these financial metrics grew so much faster than top line revenues is evidence that this young company is already starting to achieve significant economies of scale.
But even prior to announcing its financial results the market was already hungry for Audinate shares. In June and July, the company successfully completed institutional and retail capital raisings, both of which closed oversubscribed. And just to get a sense of how oversubscribed: the retail share purchase plan sought to raise $4 million to accelerate Audinate's global sales strategy, and had over $37 million in applications. That level of demand sends a strong signal to existing shareholders.
If you've never even heard of Audinate before, you might be wondering what all the fuss is about. It all stems from the company's flagship product: a technology called Dante, which enables users to easily set up even complex audio networks. Dante cuts down on latency times and simplifies audio networks, and it has won a number of international industry awards.
Better yet, the company claims that Dante has now been adopted by more professional audio manufacturers (including Yamaha Commercial Audio and Bosch Communications Systems) than any other networking technology. It has been used in the audio systems for major events by the likes of Bruce Springsteen, Paul McCartney, Elton John and even Pope Francis.
Foolish takeaway
Despite all this great news, it's important to note that based on current prices it's easy to make the case that Audinate is significantly overvalued. Based on basic earnings per share of just 1.08 cents for FY19 and a market cap that has rocketed up to close to $500 million, it is currently trading at a multiple of almost 670 times earnings.
This might mean new investors may want to think twice about picking up shares at current prices, while existing shareholders will be hoping the company can continue to rapidly scale its business in order to justify trading at such high multiples. Either way, Audinate will definitely be one to watch over the next 12 months.
