In Sophic Capital’s American Aires – Price is Right report, we demonstrated through peer company analysis how American Aires Inc. (CSE:WiFi, OTCQB:AAIRF) was both very effective at generating gross profit from marketing spend and was undervalued on that basis, at that point in time, relative to peers. In this report, we revisit these metrics, given that American Aires (“Aires” or the “Company”) recently provided fiscal 2025 guidance.
But First –
Record Breaking Sales and 2025 Guidance Announced
On January 27, 2025, management announced record-breaking sales for the fourth quarter of 2024, building on the momentum of the very strong Holiday Shopping Season. Key highlights from this update included:
- $4.2 million in cash as of January 24, 2025, and $2.3 million of inventory (December 31, 2024);
- 110%+ year-over-year increase in order volumes from January 1 through January 24, 2025;
- Q4 revenue was $8.8 million (+135% organic revenue growth year-over-year) – the strongest quarter in Aires’ history, largely due to monetization of partnerships which continue to build strength into 2025, and;
- 2024 sales estimated to be $18.2 million (+75% organic revenue growth year-over-year).
Furthermore, management provided the following guidance for 2025, driven by 2025 being the first full year to amplify and benefit from Aires’ world-class partnerships:
- sales between ~$28 million to $32 million, and;
- EBITDA between -$2 million to +$2 million.
American Aires Remains Undervalued Versus Peers
As Sophic Capital did in our American Aires – Price is Right report, we review American Aires’ valuation versus MedTech and Direct to Consumer companies. Recall, in that report, we classified comparable companies into those two categories as investors make the case that American Aires sits somewhere between those categories based on the Company’s offerings and technology-based IP, or its “moat”. Indeed, we find that on a revenue growth and Gross Margin scale, American Aires does sit in the middle of this spectrum.
Exhibit 1 suggests that current prices imply American Aires’ revenue growth and Gross Margins are relatively undervalued, comparing sales multiples with expected 2025 revenue growth and already realized Gross Margins in the Trailing Twelve Months (“TTM”). MedTech companies (“peers”) trade on 7.9 times their average 2025 sales estimates, while Direct to Consumer (“DTC”) companies trade 2.3 times their average forward 2025 sales estimates. Based upon the lower end of Aires’ 2025 revenue guidance range, it trades at 0.8 times.
MedTech companies are generally expected to grow revenue at an average of ~18% year over year in 2025 and have TTM Gross Margin around 63%. Direct to Consumer companies are generally not expected to grow much in 2025 i.e. around 4.4% and have TTM Gross Margin in the 56% range. Preliminary numbers provided by American Aires suggest the Company’s revenues will grow at 54% year-over-year at the lower end of its 2025 guidance, with a TTM Gross Margin of 63%. Therefore, Aires is trading at a lower valuation multiple despite growing at a higher rate than both categories and having Gross Margin in-line with MedTech companies’ 63%.
Exhibit 1: Peer Company Valuations
Source: Koyfin, EDGAR
Sales Multiples in Context of Business Models
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 about 22% incremental Gross Profit for each dollar spent on SG&A, while Direct to Consumer companies produce about 7% 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, but rather the effectiveness of different company business models and operating structures. This ratio for American Aires works out to around 50%, based on the low-end of the Company’s recently provided 2025 revenue guidance. This calculation suggests that using these conservative assumptions, TTM SG&A spend of $1 could produce nearly 50c of incremental Gross Profit in 2025 for American Aires versus 22c for MedTech companies and 7c for Direct to Consumer companies. In other words, based on where these companies are in their lifecycle and their operating structures, Aires is more than twice as effective at generating Gross Profit from SG&A spend relative to more established/larger scale MedTech companies, and almost seven times 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. This optionality is reflected in the Company’s range while providing 2025 revenue and EBITDA guidance.
Despite this positive operating leverage, Gross Margin roughly in the middle of both relevant categories of comparable companies, and having superior self funded organic revenue growth, American Aires is trading at a lower relative valuation. In order for this valuation gap to close, i.e. for American Aires to trade at a higher valuation (and resultant higher stock price) the Company needs to demonstrate continued execution on its revenue growth strategy and maintain current Gross Margin levels; this is where CEO, Josh Bruni’s marketing prowess comes into play and one reason why many investors own the Company’s stock. These investors will need to look for milestones throughout the year that either support or refute this execution path.
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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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