In Sophic Capital’s A Revenue Model that’s a Breath of Fresh Aires report, we detailed the revenue model of Sophic Capital client American Aires Inc. (CSE:WiFi, OTCQB:AAIRF). Essentially, American Aires (the “Company”) generates revenue by selling direct to the consumer, through partnerships, and OEM/licensing. As well, we noted that part of American Aires’ business strategy was to create loyal customers who will purchase additional products. In this report, we compare the valuation of the Company versus its peers, based upon where their stocks trade.
Aires of Distinction: Valuations in a League of its Own
In the following analysis, we compare American Aires’ valuation to MedTech and Direct to Consumer companies. Some investors could argue that American Aires sits somewhere in the middle on this spectrum of classification given the Company’s offerings and technology-based IP. Indeed, we find that on a revenue growth and Gross Margin scale, American Aires does sit in the middle of this spectrum.
Exhibit 1 shows that MedTech companies (peers) trade on average 7.6 times their forward 2025 sales estimates, while Direct to Consumer (“DTC”) companies trade on average 1.8 times forward 2025 sales estimates. On a trailing twelve month (“TTM“) sales basis, American Aires stock on the Canadian Securities Exchange trades at 1.6 times revenue, versus MedTech companies trading at ~10 times and DTC companies at ~3 times. We admit that comparing forward and TTM sales estimates is an apples-to-oranges comparison, since in addition to measuring different time periods (for a growing company TTM sales multiples will be higher than a forward multiple), different companies have different growth rates as they scale and different margin structures. To put this in context, MedTech companies are generally expected to grow revenue at ~20% year over year in 2025, and have TTM Gross Margin in the high 60% range. Direct to Consumer companies are generally not expected to grow much in 2025, with the notable exception of Innovative Eyewear, which develops and sells smart eyeglasses and sunglasses to sell them via various ecommerce and retail channels. These Direct to Consumer companies trade at an average ~1.8 times forward 2025 revenue and have TTM Gross Margin in the mid 50% range.
American Aires does not provide revenue or margin guidance, but has grown revenue by 128% and 79% annually in 2022 and 2023. That said, American Aires trades at 1.6x trailing twelve month revenue. Assuming the Company can grow its top line by 70% in 2024, which would be towards the low end of annual growth rates since 2022, implies the stock trades at even lower, about 1.2 times 2024 sales – a discount to both MedTech and Direct to Consumer peer valuations. As per Exhibit 2, MedTech have been acquired for an average of nearly 8 times revenue in recent years. Aires is trading at a lower valuation multiple despite growing at a higher rate than both categories and having Gross Margin in the low 60% range (i.e. in between MedTech and Direct to Consumer companies). For additional context, Aires’ revenue growth was 128%, 79% in 2023 and 2022 respectively, and while predicting revenue growth from such rapid growth rates is challenging, the company does have immediate pockets of growth, as evidenced by recent commentary around the 2024 holiday shopping season Order volume from October 1 through 25, 2024, which showed strong growth, totaling C$2,004,516 (versus C$813,059 in 2023), representing a 147% increase for the same date range year-over-year. Gross Margin percentage for the same date range was 62% (versus 63% in 2023).
Exhibit 1: Peer Company Valuations
Source: Koyfin, EDGAR
Exhibit 2: MedTech Merger and Acquisition Activity
Source: Corporate Press Releases
Valuation Deep Dive – Putting Sales Multiples In Context of Business Model
Another way to frame the valuation discussion is to examine how efficient American Aires’ business model is relative to peers. In this regard, as Exhibit 1 highlights, MedTech companies on average generate ~25% average incremental Gross Profit for each dollar spent on SG&A, while Direct to Consumer companies produce about 8% average incremental Gross Profit for each dollar spent on SG&A. We calculate this by dividing the increase in 2025 Gross Profit from 2024 Gross Profit (using trailing Gross Margin levels) by the trailing twelve month SG&A expenses. It is important to keep in mind that this exercise does not reflect the effectiveness or return on advertising spending (which we examine a little later in this report), but rather how effective different companies’ business models and operating structures are. Now, as indicated previously, even though American Aires does not provide revenue or margin guidance, if we assume 2024 revenue grows 70% as we previously did (towards the low end of annual growth rates since 2022), and 2025 revenue grows at an even lower 50% while holding Gross Margin at the trailing twelve month 61% mark, this ratio for American Aires works out to around 50%. This calculation suggests that using these conservative assumptions, trailing twelve month SG&A spend of $1 could produce nearly 50c of incremental Gross Profit in 2025 for American Aires vs. 25c for MedTech companies and 8c for Direct to Consumer companies. In other words, based on where these companies are in their lifecycle and their operating structures, Aires is nearly 2x more effective at generating Gross Profit from SG&A spend relative to more established/larger scale MedTech companies, and almost 6x more effective at generating Gross Profit from SG&A spend relative to D2C companies. To further clarify this analysis, the additional Gross Profit produced in 2025 is generated by the SG&A spend already incurred and paid in the last 12 months, which implies that this incremental Gross Profit should either fall to the Company’s operating earnings, or could provide additional cash in 2025 in order to fund revenue growth in 2026, depending on how management chooses to optimally allocate these dollars. Despite this positive operating leverage, and having Gross Margin roughly in the middle of both relevant categories of comparable companies, American Aires trading at a lower relative valuation Naturally, for this value generation thesis to play out, American Aires needs to to keep executing on its organic revenue growth strategy and maintain current Gross Margin levels – this is where CEO, Josh Bruni’s marketing prowess comes into play.
Bet On The Jockey Over The Horse
Underpinning American Aires’ growth is CEO Josh Bruni with his 25 years of proven success building international brands and methodically accelerating revenue. As most small cap investors understand, investing in small cap stocks is analogous to betting on the management team. Mr. Bruni’s proven strategy is to leverage high impact partnerships with athletes, celebrities, and leagues in order to create co-branded content to efficiently amplify engagement. To do this, the Company’s current target benchmark is $3 in sales for every $1 spent on advertising (3-to-1 Return on Ad Spend or $3-to-$1 ROAS), a metric that these partnership-related factors could likely amplify as the Aires brand becomes more recognizable, more trusted, and more “household” like (1000+ customer testimonials here on Junip), driving more organic sales, rather than relying on heavy advertising expenses. At the same time, Aires’ management has pointed out that each individual partnership requires initial ramp up time to devise an effective strategy, create content, build, test, and optimize advertising campaigns, to reach the full potential of the investment in the way of order volume, sales growth, and marketing efficiency.
Current partnerships include the UFC®, WWE®, Canada Basketball, and high-profile athletes, including UFC stars Maycee Barber and Michael Chandler (below). In a November 14, 2024 Instagram post, Mr. Chandler revealed that he uses the Company’s Lifetune One on all of his electronic devices for protection.
Source: American Aires
The One Thing to Takeaway…
American Aires’ order volume is strong, validating CEO Josh Bruni’s proven strategy of leveraging high impact partnerships with athletes such as Michael Chandler. In spite of this success, the stock market is not rewarding American Aires’ stock (CSE:WiFi), with the stock trading at lower revenue multiples relative to where the market currently values MedTech and direct-to-consumer peers. Investors seeking exposure to this sector, and a company growing organically via calibrated marketing campaigns, should consider Sophic Capital client, American Aires.
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Disclosures
American Aires Inc. [CSE:WiFi, OTCQB:AAIRF] has contracted Sophic Capital for capital markets advisory and investor relations services.
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