Applied UV (NASDAQ: AUVI) stock jumped 40% on the news of a new contract to install the company's signature UV bug killing systems for a major client. And, you know, a new contract is a nice thing to have and so on. But given the $7 million market capitalization the one new contract really isn't worth several million on the capital value - not when the contract is for $0.8 million. “In order to mitigate supply chain challenges in importing goods from China, Applied UV (NASDAQ:AUVI) shares soared 42.5% in premarket trading on Wednesday after the firm in collaboration with subsidiary LED Supply Co. and its FORTUNE® 500 technology partner has secured a contract valued at ~$0.8 million for lighting and building controls design for a domestic auto manufacturer's U.S. facility.” Well, yes, OK, bit it is a contract worth $800k to work on the one site and that's all it is.
It's also $800k for both companies together, as the revenue from the contract. That's not the margin for AUVI and it's most certainly not the profit for it either. It's also true that sales run around $10 million a quarter, even if losses seem to be around $3 million a quarter. So this one contract is less than 10% of one quarter's revenue. Nope, that doesn't meet the test of being worth 40% of the market capitalisation. It's not even obvious that this is a material event that requires being notified to the market.
Applied UV share price from NASDAQThe way we think of this one is that it's not the 40% fall today that needs explanation. It's why the stock soared earlier on the report of such a small contract. Today's price move looks to us just like a return to some sort of reasonable valuation.