Cheap Stocks, 3/7/2014 Update
MRVC, BLIN, DAEG, GRVY and CBEY can still be bought.
Last week we went 7 stocks up, 4 down and 2 unchanged. Since inception we are now 66 stocks up and 17 down for an 80.7% winning percentage (80% is our target win %).
Since our beginning, we have closed out the following positions:
2006-ONXS +11% (Buyout offer)
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-DTLK +25% (2 weeks)
2007-PDLI + 3%
2007-LINN.ob -57% (mortgage business bust didn't help here)
2007-TISA -39% (take some tax loss for 2007 due to disappointing results.
2008-OPTO.ob +40% (Buy-out offer)
2008-PDLI +9% (company split, and special dividend)
2008-BDAY -39% (long overdue takeover offer-or "take-under")
2008-DTLK +40% (third trip on this one)
2008-ILOG +26% (Buy-out offer from IBM)
2009-DTLK +33% (fourth trip on this)
2009-HSTM +67% (continued good earnings)
2009-CLZR -32% (a loser even on a buy-out)
2009-DTLK +28% (our 5th profitable trip on this one)
2010-CHRD +37% Buyout (2 weeks after we recommended it)
2010-HPOL +27% (third trip)
2010-CAW EVEN (excluding 2.5 years of dividends)
2011-PRM +56% Buyout (1 week after we recommended it)
2012-LTUS -98% No more Chinese stocks for us
2012-AEZS -63% a bad speculation.
2012-RIMG -46% (including dividends)
2012-HPOL +34% (4th trip)
2012-MEDW +133% (Buyout 1 week AFTER we sold this)
2012-MOTR -29% (lost biggest customer contract)
2013-INUV -83% Held this since 2007. Failed business model.
Buy Price $2.56
NEW Valuation $6.67 (Was $6.39)
Closed up $.01 at $2.64
Earnings announced on March 5, 2014. They did what they said they were going to do-revenue of $29.4 million, which was still down from $32.2 million last year. They made $.01 per share versus $.03 last year (GAAP basis). Gross margin held steady at 46% and cash per share was $1.32—50% of the current market price. Our valuation rose to $6.67. All in all, a good quarter. But—their guidance for next quarter and year was not so great. Next quarter they are projecting revenue of $24-$25 million and an adjusted EBITDA loss of $.7 to $1.2 million and for 2014, revenue of $100-$105 million and positive adjusted EBITDA of $2 to $5 million. Based on their 2014 year guidance, our valuation would fall to about $5.94 a share—still more than double the current price. Offsetting this, is that they are booting our their CEO and looking for a new one, and they instituted a $5 million share repurchase plan. We will change this one to a HOLD for now. No panic, just a wait and see attitude for a while.
UP 3%. HOLD
Valuation $31.50 ( Was $24.25)
Closed down $.34 at $7.08
Earnings announced on November 5, 2013. Oiy. Just trying to figure out how they did with all the purchase accounting and pro-forma adjustments is a nightmare. Revenues were $567 million on a pro-forma basis and EBITDA was $220 million. Using our 3.5X EBITDA less net debt gives us a valuation of $31.50. As far as we can see they are still on track with their 12/6/2012 pre-merger projections, other than digital sales did not grow as predicted. They forecast $2.33 billion in revenue, $2.681 billion in net debt and $865 million of adjusted EBITDA for 2013. For the 9 months ended September they did $1.686 billion in revenue, net debt was $2.617 and they reported $674 million in adjusted EBITDA. If they repeat the current quarter they will miss revenues by $100 million but still meet their EBITDA and net debt goals.. Obviously no one else sees it this way as the stock cratered. We will continue to hold as we have seen other value plays like Pitney Bowes ($11 to $24) and Lexmark ($21 to $35) come back from panic situations.
We will not double up here as there really is a lot of debt and this will need a couple of more quarters of performance before it is proven they can handle the debt and survive for the long term.
Paulson & Co, filed a Form 13D on 5/10/2013 disclosing a 10.9% stake. They have held this stake since before the bankruptcy and merger. Then on May 14th, they filed a 13D/A disclosing another 350,000 share buy at prices up to $17.07 bringing their stake to 13%.
Down 53% HOLD
Valuation $5.57 (Was $6.71, $6.16, $6.79, $6.50)
Closed down $.06 at $2.70
Earnings announced on February 6, 2014. So-so. Revenue fell to $13.3 million from $14.2 last year, gross margin fell a bit to 59% from 63% and Non-GAAP net income fell from $2.2 million to $1.9 million. Mobile revenues were up 14%. Our valuation fell on the sales decline to $5.57—still more than 3X the current selling price. This is a company in transition and we are will to wait to see if they can turn it around.
From their last press release:
"Fiscal 2014 will be a year of significant transition for the Company as we begin the migration of our legacy customers to the XRS mobile solution. As we transition from our legacy hardware-based solutions to our no upfront cost mobile solutions, we expect soft overall revenue. We expect accelerating mobile revenue growth with consistent margins and will continue to invest in the further development of the XRS mobile solution with key integrations to strategic third-party providers thereby creating a whole product that will position us to capitalize on this expanding market."
UP 80%, HOLD
Valuation $3.25 (Was $3.19, $3.42, $4.64, $4.86, $4.00)
Closed up $.14 at $1.32
Earnings were reported on 2/25/2014. YOY comparisons were not good. Sales fell to $7.9 million from $10.4 million and adjusted EBITDA fell to $1 million from $1.8 million last year. Net debt decreased a bit to $11.3 million from $11.6 million last quarter, and is down about $2.4 million from last year. This is the first quarter in a while where sales did not decline from the previous quarter.. Our valuation stabilized and rose a bit to $3.25 per share-still a lot higher than the current trading price.
Norm Pessin filed a 13D on November 27, 2013 disclosing a 6.2% stake and upped it to 12.2% in December 2013. Good news that someone else sees the value here.
Kurt Jensen a 10% owner continues to sell stock at almost any price, putting a lid on DAEG. He still has 1.6 million shares, so this could take a while. .
Up 22%, BUY
Valuation $1.83 (Was $1.61, $2.19, $2.35, $2.56, $2.24)
Closed unchanged at $1.13
Earnings announced February 14, 2014. Revenues were $6.5 million up from $6.2 million last year. This is the first time in a long time that the YOY comparison was positive. Revenue from their legacy business was only $387,000. Recurring revenue doubled from last year to $1.6 million. They reported a $777,000 loss for the quarter. Adjusted EBITDA was $20,000.
For FY 2014 they are projecting revenue of $28 million and positive adjusted EBITDA (compared to a loss of $700,000 in 2013). Our valuation fell a tad to $1.74 a share.
We really like BLIN and think that just their recurring revenue stream of $6.4 million is worth the current $20 million market cap.
Down 9%, BUY
Valuation $5.32 (Was $6.81, $6.28, $4.89, $6.02, $6.72, $5.49)
Closed up $.13 at $2.30
Earnings announced on January 30, 2014. Hmmm. Revenues were down to $79 million from $133 million last year. “Adjusted net income” was $.02 a share compared to $.20 last year. Gross margin was up to 40% from 37% last quarter and 31% last year. Our valuation fell to $5.32, still more than double the current price. Lower margin government revenues were down over 50%.
Still not a good quarter.
UP 68%, HOLD
Valuation $26.12 (Was $27.58, $28.24, $28.33, $29.04, $29.59, $29.58, $29.21)
Closed up $.45 at $7.30
Earnings announced on November 6th. Not great. Sales fell to $113.7 from $121.5 last year, and they lost $3.3 million (excluding a $2 million write-off. Our valuation fell a bit to $26.12. The big news to us was that they announced they are looking at “strategic alternatives” which includes the sale of the company. This could result in a number of things happening, including nothing, but it is a good sign that they understand that they get no respect in the market. They said they would slightly miss their full year 2013 sales guidance from $464-$471 million and come in at the middle of their previous EBITDA guidance of $76-$80 million.
Penn Capital Mgmt. filed a 13G in late February 2013 disclosing a 5.55% stake.
$78 million of EBITDA, $.25 a share in net cash and a $185 market cap. Cheap.
UP 2%, BUY
Buy Price October 7, 2011- $8.50 ($25.40 before special dividends)
Closed at $14.75 up $.50
Earnings announced on 11/12/2013.
Revenues were up 11% to $38.4 million and their loss declined to $146,000 from $1,320,000 last year. Net cash per share was $3.54 and our valuation jumped to $28.98 a share. They say they are continuing to invest in the business and that these should become apparent in 2014. Patience.
Lloyd Miller disclosed a 6.9% stake in February 2012.
Raging Capital bought another 1.6 million shares in the first week of December 2012 at $10.80 bringing their holdings to 20.1% of the company.
Still trading at less than ½ our valuation.
UP 72% BUY
Valuation $12.30 (Was $11.86, $8.24, $13.05, $10.67, $8.41 $12.10, $13.40, $16.02)
Closed up $.08 at $4.98
Ariel Investments filed a 13G on January 10, 2014 disclosing a 10.1% stake in Sigma.
The CEO bought 343,000 shares back from Potomac Capital in December 2013 leaving Potomac with only 465,000 shares of SIGM. The interesting part was that the CEO paid $5.50 a share or about $1 over its trading price. Either a great expression of confidence in SIGM or a small price to pay to get rid of an activist investor. Since we don’t know which it is, or both we will stay a hold on this, even though our gut says to buy.
Earnings announced on December 11th. They continue to do what they say they are going to do. Revenues were $54.4 million, net cash was $88.1 million or $2.55 per share and our valuation rose a bit to $12.39. They reported Non-GAAP income of $3.3 million or $.10 a share.
But, they surprised Wall Street with Q4 guidance of revenues of $40-44 million and essentially breakeven results. They also announced a $20 million share repurchase program—which didn’t impress anyone. With the stock off 16% last week and near its 5 years lows now would be time to buy some I guess. This will only help if they can be profitable going forward.
Our valuation will fall to about $11 based on their guidance, which compared to $8.24 in their year ago fourth quarter. At this price and valuation we are still at a hold on SIGM.
Down 41%, HOLD
Valuation $15.10 (was $14.55, $14.77, $16.26, $16.20, $15.37, $13.53, $15.85, $14.13, $11.38, $14.04, $18.54, $15.99)
Closed up $.33 at $9.19 (including dividends)
Pays $.48 annual dividend.
Earnings announced on January 28, 2014. Good again. Revenues increased 7.5% to $17.8 million and they made $.12 a share compared to $.08 last year. Cash was $25.1 million or about $2.78 a share and our valuation rose to $15.10 a share up from $14.33 a share last year.
We have collected $.48 in dividends so far (excluding the $.50 special dividend which reduced our basis).
UP 101%, HOLD
Valuation $3.18-(Was $3.06, $3.02, $4.14, $3.65, $3.41, $5.52, $5.00, $5.39, $5.33, $5.61, $5.73, $4.38, $4.44, $5.15)
Closed at $1.09 down $.06
Earnings announced on November 29th for the quarter ended September 30, 2013. Revenues were $12.1 million versus $14 million last year and $11.4 million last quarter and they lost $1.7 million. Net cash rose to $46.7 from $45.2 million or $1.69 per share. Our valuation rose a tad to $3.18 per share.
Lots of product introduction updates in their press release, but not much has been translating to the financials. Looks like they lost their licensee in China and are looking for a new one and they canceled the Korean version of Ragnarok 2, although the English version is still available. Revenues were up a bit as was cash, but unless the company decides to distribute some of that excess cash (like $1.00 a share) this is going to be a long wait.
Down 25%, BUY
NEW Valuation $5.57 (was $5.70, $6.71, $6.41, $6.14, $5.97, $6.21, $6.13, $5.82, $5.81, $5.72, $5.65, $5.39, $4.86, $5.60, $5.73, $5.54, $5.74, $5.96, $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $3.28, unchanged
Q2 earnings announced 3/6/2013. Revenues were up 9% to $8.1 million from $7.5 million last year, gross margin was 79% and they lost $461,000 compared to income of $4,000 last year. This quarter included a $234,000 restructuring charge that should cut annual costs by $2.5 million Recurring revenues were 95% of total revenues. They say in the press release that they are investing more in sales and marketing this year, but still expect to achieve higher EBITDA than last year. Q2 revenues were essentially flat with Q1. If they don’t get some revenue traction soon, we don’t expect to see much share price appreciation. Our valuation fell to $5.57. Still trading at only 59% of our valuation.
ARI announced another acquisition in November 2013. No details, but a good sign that they are really trying to accelerate their growth.
Wynnefield partners bought another 100,000 shares at $2.90 in the first week of July 2013 raising their stake to over 10%.
UP 104%, HOLD, Still a Huge valuation gap here.
Valuation $1.02 (Was $1.05, $1.07, $1.14, $1.17, $1.34, $1.34, $1.37, $1.36, $1.23, $.91, $1.21, $.71, $.83, $.88 $.96, $.93, $.75, $.85, $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price $.33 closed at $.31
CTIG settled a litigation with QWEST in February and got paid $1.3 million.
Some news—finally. Fairford/Birbeck upped their non-binding offer to $.40 a share. No indication as to whether the Board will accept it or any other details. Still a lowball offer but one which we would take after holding this for almost 8 years.
10Q filed on 11/14/2013. Not even a press release. Still trying to steal this under the cover of darkness. Revenues were $3.6 million, down from $3.9 million last year. They lost $394,000 compared to net income of $34,000 last year. Our valuation fell to $1.02 a share still more than triple the management buyout price. Cash per share fell to a measly $.02.
Birbeck and Fairford Holdings made a non-binding offer to buy CTIG in March 2013 for $.29 a share. The company formed a special committee to evaluate the offer. Hopefully they will find somebody else who will pay fair value—or at least close to it.
UP 22%. HOLD