A Monthly Review of GeoInvesting’s Most Notable Activity — GeoInvesting April 2016 Newsletter
Our Calls to Action
Money-making Moves that the GeoTeam Conveys to its Premium Members
- April 6 and 27, 2016 — Wingstop Inc. (NMS:WING) — We published our short thesis on WING on 4/6/16, calling for 30-40% downside potential. WING appears to be grossly overvalued vs. its peers that are also overvalued. The company is not offering a unique concept and it’s forward PE multiple of 45 is not justified. Our views were fortified on 4/27/16, when BWLD reported negative sales comps data and the stock quickly sold off by 10%. We think it’s only a matter of time until the market adjusts WING’s share price to more realistic levels.
Information Arbitrage News
News Before the “Rest of the World” Finds Out
- April 6 and 7, 2016 — Momo Inc. (NMS:MOMO) – On March 7, 2016, there were rumors in China media speculating that BABA was looking to potentially acquire MOMO. On April 6, 2016, MOMO filed a 13D/A that was not accompanied by a press release from either MOMO or BABA. The filing disclosed Alibaba Investment Limited’s agreement to participate with a Buyer Group that proposes to acquire MOMO at $18.90 per ADS. Examination of MOMO’s most recent 20-F indicates Alibaba owns about 20.6% of the equity interest in MOMO. BABA’s participation dramatically enhances the likelihood that the Buyer Group’s effort to acquire and take MOMO private will be successful. We alerted premium members of BABA’s participation at 9:13AM on April 6 when shares were trading in the low $13.00 range. Investors who acted on this information arbitrage opportunity captured a 20% gain before the rest of the market caught on. Shares recently traded at $16.45 but have since crumbled over rumors that U.S. Listed Chinese companies considering privatization may find difficulties re-listing their shares in China amid regulatory restrictions.
- April 4, 2016 — Golden Enterprises Inc. (NASDAQ:GLDC) – An intriguing value plus growth play with activist investor involved. GLDC sells various salted snack and related products. Revenue growth has been steady but slow with EPS lumpy since 2005. We think that is about to change. A 13D filing in August 2015 by an activist investor fund revealed a 5% stake. The filing disclosed that once the fund acquired 8% of the GLDC’s capital stock it would have the right to nominate one person to the Board of Directors. On 10/30/15, the company disclosed the fund’s stake had increased to 8% and one board seat was added to accommodate the fund’s selection. Financial results for fiscal Q2 2016 were uninspiring with revenues down 0.6% compared to the same period in 2014. Management asserted, however, that they do not expect sales to continue to decline and noted improved margins and reduced SG&A as a % of sales. GLDC pays a 3% dividend and is well worth tracking.
Top Performing Picks
Picks that GeoInvesting is Particularly Proud Of
- April 29, 2016 — Lingo Media (OOTC:LMDCF) — Closed our long position with a 200% gain. On August 31, 2015 we stated we were establishing a small speculative position in LMDCF based on strong Q2 2015 results. On October 1, 2015, Geo Contributor W. Xion submitted an article on LMDCF titled, “Lingo Media is an Undervalued Edtech Company”. Shares were trading at around $0.27 at the time of Mr. Xion’s article and recently reached a high of $0.95 (250% gains!).
- April 29, 2016 – BG Staffing Inc Common Stock (AMEX:BGSF) — We utilized publicly available information to build a financial model for BGSF that included two recent acquisitions. Our pro forma 2016 sales and EPS results for the company exceeded analysts’ estimates (see research note here). BGSF reported Q1 2016 that beat analysts’ revenue and crushed EPS estimates. We believe BGSF is a strong value plus growth play and remain long. We initially opened our position on October 6, 2015 when the stock was trading at $13.35, giving us more than 20% in overall gains when the stock attained a recent high of $16.25.
Additions & Subtractions of GeoInvesting’s Best Picks
- April 28, 2016 — Superior Uniform Group Inc. (NASDAQ:SGC) — GeoBargain SGC is one of America’s top providers of uniforms and image apparel. Its recent acquisition of BAMKO announced on March 8, 2016 helped boost Q1 2016 results including sales of $58.0 million vs. $46.3 million and non-GAAP EPS of $0.19 vs. $0.14 in the prior year. We are impressed with the Company’s 15.7% organic growth in Q 1 which was well above it long term growth rate of 8%. On a macro level, consistently strong employment reports stimulate higher employee turnover and greater demand for new uniforms.
- April 1 and 5, 2016 — Repro Med Systems (OOTC:REPR) – Has been in a holding pattern since dropping sharply following the company’s press release regarding a FDA warning letter. Management is confident that all issues will be favorably resolved but the process could take up to six months. In the meantime, the business is operating normally and performing. The company provided preliminary Q4 2016 (February28) revenues ($3.2 million) and a business update. Also, REPR recently participated in an industry trade show receiving strong support from existing customers and a positive response from prospective customers including the US military. Finally, in a vote of confidence, Joseph Manko of Horton Capital Management filed a Form 4 disclosing the open market acquisition of 70,500 shares bringing his holdings to nearly 4.7 million shares. Assuming REPR’s Freedom60’s longstanding Class II status is confirmed and the other issues raised in the FDA letter are resolved; stock could easily regain and surpass its recent high of $0.59.
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