Coda Octopus Group, Inc. (CODA) stock intrinsic value fair value estimate & owner earnings analysis

Coda Octopus Group is a small underwater technology company with three businesses. The Marine Technology Business ($13.2 million of fiscal 2025 sales, year ending October 31) sells and rents the Echoscope real-time 3D imaging sonar and the DAVD diver augmented-vision display. Its gross margins run in the mid-70s (74.5% in 2025, 77.9% in 2024). The Defense Engineering Services Business ($7.9 million) makes engineered parts and mission-computer products for defense customers from Utah and the United Kingdom. Precision Acoustics ($5.4 million) makes acoustic sensors and materials. The company bought it on October 29, 2024 for $6.54 million, or $4.61 million after the cash that came with it. Total fiscal 2025 revenue was $26.6 million. Sales are spread fairly evenly across the Americas, Europe and Australia/Asia, with a smaller share from the Middle East and Africa. We value the business on the cash it produces for its owners. We start from operating cash flow and then remove three things: swings in working capital, stock-based pay (which we treat as a real cost), and the capital spending needed to keep the business running. Over ten years this figure has ranged from $0.15 a share (fiscal 2023, a heavy capital-spending year) to $0.60 (fiscal 2016). It was $0.36 in fiscal 2024 and $0.46 in fiscal 2025. Before the acquisition, the typical (median) year from 2016 to 2024 was about $0.36. That period covers both strong and weak years. Precision Acoustics earned about $0.48 million in the year before the purchase and $1.38 million in its first year under Coda. Averaged, and after the interest income given up on the purchase cash, that adds roughly $0.07 a share. We therefore use $0.43 a share as normal earning power today. Most of the fiscal 2025 jump in amortization, from $60,476 to $530,218, is non-cash write-down of the acquired technology, valued at $2.95 million. We add it back, because the business behind it is still producing sales and profits. The risk that this technology loses value over time is carried in the bear case instead. Earn-out payments to the sellers ($213,343 expensed in 2025; up to $418,223 and $652,275 in fiscal 2026 and 2027 if targets are met) are part of the purchase price, not operating costs. Base case, $6.99 a share. Owner earnings grew 26% in fiscal 2025, helped by the first full year of the acquisition. We assume only 6% in year one, then 4% and 3%, then 1% a year through year ten, ending near $0.52 a share. The early growth rests on named events: the first production order for the untethered DAVD (16 systems delivered for the U.S. Navy MK16 rebreather), a first small batch order from a European navy, and the NANO Gen sonar launched in the fourth quarter of fiscal 2025. The first half of fiscal 2026 supports this: revenue rose to $13.6 million from $12.2 million and net income to $2.63 million from $1.82 million. The slow growth afterward reflects the record: sales of the pre-acquisition business were about the same in 2024 as in 2016. After year ten, earnings stay flat until year thirty and then stop. That rests on nearly two decades of continuous operation, profitable owner earnings in every one of the last ten years, and about $2.4 million a year of research spending that keeps the product line current. Bear case, $2.52 a share. Operating earnings reset to about $0.22 a share, near the weaker years of the last decade. They then decline 2% a year and fade to nothing by year twenty. The named risks: rental revenue fell 36.6% in fiscal 2025 after the change in U.S. policy on funding offshore renewables; the company reports a shortage of skilled staff that has already cut research headcount; Precision Acoustics could fall back to its pre-acquisition profit level; and defense orders are lumpy. We keep about $0.05 a share a year of interest income, because the cash pile ($28.7 million at October 31, 2025; $30.6 million at April 30, 2026) does not vanish when the business shrinks. The company has not borrowed in recent years, so debt does not worsen the downside. Bull case, $11.59 a share. This starts from fiscal 2025's actual $0.46. DAVD moves from first orders into wider adoption across the U.S. Navy commands already using the tethered version, and Precision Acoustics meets its earn-out growth targets. Growth runs 12%, 10% and 8% in the first three years, then 5% a year to about $0.86 a share in year ten, and holds flat to year forty. The cash balance, about $2.70 a share, counts only through the interest it earns, not at face value. That makes all three cases conservative if the cash is eventually returned or put to good use. Cash taxes paid in the first half of fiscal 2026 ($1.11 million, against $0.19 million a year earlier) are running well above past levels. We have not assumed that continues at that rate, but a lasting rise would lower every case. The margin-of-safety price is $4.00 a share. That is a wide margin below the base case, sized for a very small company whose results swing with individual defense orders and rental demand. It sits well above the bear-case value mainly because the cash on hand limits the permanent downside.