GEO Investing

Friday morning, we briefly covered  the financial results for the first quarter of 2015 of MER Telemanagement Solutions Lt (NASDAQ:MTSL), a technology stock we have been covering for a the long term. Financial results were not positive as the company lost money with flat revenue growth year-over-year. However, on April 1, 2015 the company completed the acquisition of a software company supporting video advertising over the internet and mobile devices. The financials of the acquired company were not included in Q1 results:

  • Q1 2015 revenues was $4.2 million.
  • Q1 2015 operating income was $1.1 million.
  • Q1 2015 net income was $1.0 million.

Acquisition not Baked into MTSL Stock Value

Going on this information, the entity post-acquisition consolidated entity will be in a much better shape based on an initial analysis!

Regarding the bottom line of consolidated entity, we stated that the 2015 EPS run rate range will range from $0.12 to $0.37 (non-taxed). We conducted further analysis and determined that, had the company consolidated the financials of Vexigo, the fully taxed diluted EPS run rate for the next 12 months works out to be around $0.18. If we apply a P/E multiple of 15 on EPS of $0.18, then the target price of MTSL is $2.70 a share.

We need to keep in mind that this target price does not consider the fact that Vexigo appears to be posting accelerated growth in sales and earnings . For example, based on the disclosure from the acquisition agreement, the first 9 months 2014 revenue of Vexigo was $6.56 million, and the corresponding net income was $2.17 million. Extrapolating the nine months data gives us a 2014 annual revenue and net income assumptions of $8.75 million and $2.89 million , respectively. However, for the first quarter of 2015 Vexigo has already delivered quarterly revenue of $4.2 million with net income of $1.0 million.

To see this and another stock that we believe are poised to go up on arbitrage, please go here.  We released the full note to our Premium Members on Friday, and they are already reaping profits!

To stay ahead of the market with GeoInvesting arbitrage and learn about investment ideas not yet digested by the market, Sign up now for More Research and Insight