Call(s) to Action:
QLTY ($13.28) – Will nibble at shares prior to Q2 2014 earnings which are expected to be announced tomorrow after the close. It appears that at the start of Q3 2014 company will experience a GPR of 6. Overall 2015 EPS is expected to grow around 40% to $1.10. We think shares can approach a PE of 25 on 2014 EPS estimate of $0.77, which could result in a share price of $19.00/share if the company executes its strategy. The stock has recently pulled back with the market from its high of $15.83 reached on 07/23/2014.
TRNS ($9.34) – Possible buy. We feel shares can bounce back after falling 9% on 7/31/2014 on Q1 2015 earnings release. Bullish management commentary for remainder of fiscal 2015 offset slower than expected start in Q1 2015.
Here are the other stories that the GeoTeam is following today… (Please see full disclosures at bottom)
- CNIT ($4.75) – Announced it has entered into strategic partnership with CITIC Securities, China’s largest security broker.
- U.S. News
- TISA ($3.95) – Reported Q2 2014 results; Beat analyst EPS estimates by $0.03, beat revenue estimates, with EPS of $0.02 vs -$0.06 in the same quarter last year. The reported financials do not include any contribution of the third quarter acquisition of eGistics announced July 8, 2014 and closed July 16, 2014.
- IESC ($6.14) – Will begin tracking due to the company achieving quarterly profits in Q1 and Q2 for the first time in 10 years. (First two quarters are the company’s seasonally weakest quarters). Company expects Q3 2014 EPS to be between $0.12 to $0.21 which will mark the highest level in 6 years. The company has embarked on an acquisition strategy to grow the company.
- GeoBargains/GeoBargains on the Radar
- GeoBargain on the radar SPCB ($8.99) – Announced that it has been selected as the winning bidder for new contracts representing more than $22 million in size.
- GeoBargain on the radar IG ($5.83) – Shares were strong on Friday due to a competitor increasing econazole nitrate pricing by 6x, a similar drug IG has in its portfolio.
- Tier 1 Pinks
- CFED ($0.65) – Could be on the verge of profitability for first time in its history; no debt and only 17 million shares outstanding. Significant backlog of orders discussed by management implies the company is on pace to possibly report $5 million in revenues and $1.7 million of gross profit in fiscal 2014. The anticipated $5 million in revenues would easily surpass prior record revenues of $3 million achieve in 2007.
- Its recent spike in headcount is a clue that EACO ($7.60) may finally be on the verge of consistently growing its EPS?
- Pump and Dumps
- BLCK ($5.45) – Attempting to ride the hype of the blockbuster dating APP, TInder.
For more timely information, particularly during the daily trading session, we urge our members to read our message board posts daily.
Disclosure: Long SPCB, IG ; Other Long Positions; Other Short Positions; Pump & Dump Positions (Password GEO2014)
Summary of general highlights:
On the Asian Front…
China Information(NASDAQ:CNIT) ($4.75) – a leading provider of integrated internet-based platforms, products and services in China, today announced that the Company entered into a strategic partnership with CITIC Securities Co., Ltd. (“CITIC”) (Shanghai Stock Exchange: 600030).
As China’s largest securities broker by total asset and market share, CITIC is best known for its securities research and asset management in the Chinese capital market. Pursuant to the partnership agreement, CITIC will provide a variety of corporate financial services including mergers and acquisitions, pension management, and brokerage services on a needed basis. During CNIT’s strategic transition from traditional IT system integration to the cloud-based internet platform technology, CITIC will assist the Company in exploring various alternatives in China to enhance long-term shareholder value. In addition, CNIT and CITIC will collaborate to restructure CNIT’s traditional IT system integration business, which generates lower margin and higher receivables than the emerging cloud-based internet platform services.
With 271.4 billion RMB in total assets, CITIC had over 4 million brokerage clients in 2013. Managing over 504.9 billion RMB, CITIC also ranked No. 1 in asset management. CITIC is the parent company of CLSA Asia Pacific Markets. CITIC Securities is the securities arm of CITIC Group, which is one of China’s largest state-owned financial conglomerates.
Quotes from management,
Mr. Jiang Huai Lin, Chairman and Chief Executive Officer of the Company, commented, “With the launch of CNIT Cloud Platform powered by our proprietary Cloud-App-Terminal (CAT) technology, we are entering into a new period of innovation and potential growth. In addition to faster revenue growth, our goals are margin expansion and stronger cash-flow generation, which we believe will ultimately create long term value to our shareholders. The strategic partnership with CITIC is an important milestone for us. I believe CNIT shall benefit greatly from CITIC’s expertise in the Chinese capital market.”
On the U.S. Front…
Supercom Ltd Ordinary Shares (NASDAQ:SPCB) ($8.99) – GeoBargain on the Radar SPCB provides electronic monitoring, identification, and security products and solutions to governments, and private and public organizations in Europe, the United States, and Israel. The company announced that it has been selected as the winning bidder for new contracts representing more than $22 million in size.
Quotes from management,
Commented Arie Trabelsi, President and CEO of SuperCom, “We are very pleased to have been selected as the winning bidders for these new significant contracts, clearly demonstrating our abilities and success in monetizing our vast and growing pipeline. We believe that these type of contracts are the initial stage in our building of a long-term relationship with new customers and will potentially bring us additional orders in the future. We continue to see fantastic growth in demand for our e-ID and M2M solutions globally, and we believe our success so far in 2014 only marks the beginning of strong and exciting international growth.”
Igi (AMEX:IG) ($5.83) – GeoBargain on the Radar IG engages in developing, manufacturing, filling, and packaging topical semi-solid and liquid products for cosmetic, cosmeceutical, and pharmaceutical customers in the United States. Shares of IG were strong last Friday due to a competitor increasing econazole nitrate pricing by 6x, a similar drug that IG has in its portfolio. Per its filings, IG didn’t disclose the revenue contribution of its drug, econazole nitrate cream 1%, if any. We will try to contact the company for further information on this breaking news.
In Other U.S. News…
Top Image Systems (NASDAQ:TISA) ($3.95) – TISA is the leading innovator of enterprise solutions for intelligent document recognition, data extraction and validation of content entering organizations from various sources. The company reported Q2 2014 financial results:
- The revenue in this quarter was 8.2 million, an increase of 29%, as compared to 6.4 million in the prior year.
- The diluted EPS was $0.02 vs -$0.06 in prior year.
Quotes from management,
Michael Schrader, COO of Top Image Systems, commented, “We continued to deliver double digit organic revenue growth, up 29% year over year, recording non-GAAP operating profit of $0.6 million, and increasing our percentage of recurring revenue in the mix to 34%. Strategically, we experienced solid gains in the U.S and mobile markets, highlighted by a new partner agreement to sell MobiPay, the addition of a new mobile sales manager and a growing pipeline for our overall U.S. operations. Leveraging this momentum, the acquisition of eGistics at the start of the third quarter will serve to accelerate our positioning in the U.S. by tripling our headcount in the Americas to more than 65 employees and by providing direct access for cross-sales of TIS solutions to top U.S. financial institutions. Going forward, eGistics will enable TIS to extend its current solutions and develop new products on the CloudDocs platform. The transaction will also diversify our revenue, as it will make the Americas our largest geography by revenue. This transformative acquisition increases our scale and elevates our recurring revenue product mix to 49% of 2013 pro-forma results.”
Mr. Schrader added, “Our continued and reinforced four-prong focus on enhanced cloud capabilities, transition to SaaS, our advanced mobile image processing solutions and a strong sales presence in the U.S. – our primary target growth market — is driving product, sales, marketing and executive recruitment strategies to ensure maximum revenue growth. We aim to increasingly deploy in the U.S. and global markets the most advanced multichannel capture-initiated smart process applications that liberate businesses and consumers by enabling them to easily and rapidly capture and process data anytime, anywhere. Looking ahead, we are excited about integrating eGistics’ products and personnel into the TIS family, to accelerate our growth in the U.S. market and to expand our mobile and cloud-based payments portfolio worldwide.”
The financial results in this quarter did not include any contribution of the acquisition of eGistics which closed during the company’s Q3 on 07/16/2014. It is expected that eGistics will start to partially contribute to TISA’s financial results in Q3 2014.
Integrated Electrical Svs (NASDAQ:IESC) ($6.14) – IESC is a holding company that owns and manages diverse operating subsidiaries, comprised of providers of industrial products and infrastructure services to a variety of end markets. We are starting to track the company due to that fact that the company had achieved quarterly profits in Q1 and Q2 for the first time in 10 years, which tend to be the company’s seasonally weakest quarters. Our reasons for tracking are:
- Revenues have been stagnant since 2010 at around $400,000 annual revenue, and prior to 2010 revenues had been in a steady decline from around 1.5 million in 2003. Over this period, the company also had a history of reporting consistent losses. However, the company has put 2 straight quarters of profitability:
Q1 2014: Adjusted EPS of $0.03 vs $0.04 in prior year;
Q2 2014: Adjusted EPS of $0.04 vs -$0.07 in prior year.
- According to SEC filings the company has provided outlook for its Q3 2014 earnings per share between $0.12 and $0.21, which will mark the highest level in 6 years,
“IES management expects the Company’s fiscal third quarter net income from continuing operations to be between $2.1 million and $3.8 million and fiscal third quarter earnings per share to be between $0.12 per share and $0.21 per share…”
- The company’s backlog was approximately $219 million at March 31, 2014, a $5 million increase from December 31, 2013 vs what last year of $206 million.
- It appears that the company has embarked on an acquisition strategy to grow the business.
- The company was profitable in first 2 quarters of 2014 which are historically slow periods for the company.
- Acquisition strategy could lead to routine offering of stock.
The company just completed an equity offering of 3.85 million shares at price of $5.20 per share, which increases the total share count of the company to 21.77 million.
Tier One Pinks…
Confederate Motors (OOTC:CFED) ($0.65) – Confederate Motors, Inc. is one of the world’s leading manufacturers of handcrafted street motorcycles of superior design, structure, performance and quality.
- According to the company’s SEC filings, CFED has been unable to execute its business plan due to difficulty building inventory to meet demand, but now the company seems to be increasing inventory levels, according to management’s overview and outlook for the company in 10Q filing for Q1 2014,
“We believe that the near-term global economic environment is improving for our business. We are optimistic about the Company’s long-term business prospects and plans to continue to expand production and global distribution. The operational focus for the first quarter 2014 was spent on growing inventory.”
- Also according to the same 10Q filing, it appears the company’s product is beginning to gain popularity
Activity on our website has increased from approximately 14,000 unique visitors per month in 2005 to approximately 22,746 per month in 2013. Management believes these statistics point to an improvement in quality and relevance of referrals to our site. Going forward, our plan is to spread and better organize and classify information about our products and brand by separating information across a total of three web presences, in order to pull in more web traffic and widen our sales demographic. The goal of this diversification is not just intended to increase motorcycle sales but specifically to create an entirely new revenue stream in apparel, parts, and accessory sales.
- Business outlook commentary implies that the company could be in a position to report sales of $1.23 million and report EPS of $0.01 after tax. The outlook also implies the company will soon be in a position to report annual revenue in excess of $5 million (based on current margins and guidance of $1.5M in gross profit), easily surpassing previous record of around $3 million in 2007, and 100% higher than 2005. $1.5 in gross profit would equate to EPS of $0.04 to $0.05.
“At March 31, 2014, the Company maintained a backlog of orders represented by deferred revenue totaling $827,638. This account is a revolving account with funding added as new orders are placed and relieved to revenue as motorcycles are shipped. As of May 15, 2014, the Company has the needed inventory to begin relieving these funds as revenue.
We have a significant backlog of orders. As of the date of this report we had 35 orders which represented four months of production and approximately $1.7 million in gross revenue. Assuming our average gross profit margin of 30%, we would earn $510,000 in gross profit. Management projects an additional 50 to 100 orders with the unveiling of the C4 Hellcat and the Limited Edition Pierre Tereblanche P-51 Fighter at the 2014 year end. The required inventory has been ordered and backlog production is scheduled to begin on or before July, 2014.
Additionally, management is planning diligently in an effort to begin producing two bikes per week beginning in July 2014. We expect to produce up to 65 motorcycles this year which would represent approximately $1.5 million in gross profit. All inventory items needed have been ordered and are expected in house by mid-June 2014.”
- In addition, the company also has nice capital structure with around 17 million shares and no interest-bearing debt.
Plan to interview management and coding as GeoBargain on the Radar.
- It is unclear if company needs to raise capital to fill its backlog.
- Its current backlog gross margin of around 30% is significantly less than last Q1 2013 of 46%.
- We have not assumed an material increase in SG&A when calculating our EPS estimate, which is probably a little too aggressive.
Eaco (OOTC:EACO) ($7.60) – EACO is engaged in the distribution and sale of electronic components and fasteners in the United States and Canada.
- Although the company’s quarterly revenues have been sporadic since 2009, its annual revenue, as well as its EPS, have shown moderate growth
- Sales: $92M in 2010 to $120M in 2013
- EPS: $-0.30 in 2010 to $0.51 in 2013
- The company has reported revenue of around $30 million for 5 consecutive quarters. Previously the company had only reported revenues over $30 million in 2 quarter.
- Q3 2014 May ended filing discussed the company’s strong third quarter performance,
“Revenues consist primarily of sales of component parts and fasteners, but also include, to a lesser extent, kitting charges and special order fees, freight charges by the Company to its customers, and rental income from EACO owned properties. The Company is not expected to have rental income in future periods as a result of the sale of its Sylmar properties in June 2014. The increase in revenues in the three months ended May 31, 2014 (“Q3 2014”) as compared to the three months ended May 31, 2013 (“Q3 2013”) was largely due to increased unit sales, resulting from the Company focusing on relationship building programs with current and potential customers. Revenues have also increased due to significant increases in sales personnel hired in the previous year becoming more efficient and selling towards the peak of their potential.
Additionally, the Company’s sales force is divided into Sales Focus Teams (“SFTs”). These teams generally focus the majority of their time on specific industries, product lines and/or geographic regions and are designed to assist the Company in increasing market share in specific areas and, as a result, increase sales. The Company increased the number of its SFTs by 5% from the same quarter in the prior year, from 92 SFTs as of May 31, 2013 to 97 SFTs as of May 31, 2014.”
- Margins are likely to get a boost because its recent employee hiring’s may begin generate revenue for the company.
- It looks like the company has also improved its balance sheet: it settled a $4,8 million mortgage debt and $1.3 million workman’s compensation claim.
Our major task is to interview management to determine if the company can reduce quarterly volatility in its financials.
Transcat (NASDAQ:TRNS) ($9.34) – TRNS engages in the distribution of professional grade handheld test and measurement instruments, as well as provides calibration, repair, and other measurement services in the United States, Puerto Rico, and Canada. Although the company has steadily grown revenues since 2004, the pace has not been robust, and EPS growth is also unexciting since 2011. Share fell 9% on 07/31/2014 after the company reported poor Q1 results ended March 31,2014.
However, we think shares can bounce back due to the Q1 2015 comments in press release from management inferring that revenue growth will begin to accelerate:
Lee D. Rudow, President and CEO of Transcat, commented, “Although we had a slower than expected start out of the gate for fiscal 2015, we remain confident that we should achieve significant revenue growth for the year and demonstrate the strength of our cash generation and earnings power. Service revenue increased despite comparison to a very strong first quarter of fiscal 2014; however, it did not meet expectations. The Distribution business is highly competitive and we’ve been aggressive in our pricing strategies to defend our market share. As expected, growth-based vendor rebates were lower this quarter as we are coming off a higher base due to last year’s growth. We believe our new website launch, expected in the second quarter, will deliver additional market opportunities for us.”
Pump and Dumps…
Blackcraft Cult (OOTC:BLCK) ($5.45) – BLCK wholesales clothes and accessories for men and women. The company was incorporated in 2013 and is based in Orange, California. We are starting to track the company and reasons are:
- The company completed a reverse merger on March 27th 2014, and the company has embarked on two business ventures,
- owns all of the assets, liabilities and operations of BEI which owns and operates the Blackcraft lifestyle apparel brand rooted in the ideal of self-realization being superior to religious indoctrination and other society enforced norms.
- A dating APP
- The company is attempting to spin a feel good story. From its 8K/A filing:
“Bobby Schubenski and Jim Somers started with a passionate idea, 40 black t-shirts, a few close friends, and $100 in July 2012. Through their organic, grass roots marketing campaign, Blackcraft’s message and products quickly gained acceptance and spread throughout the music, fashion, and tattoo communities, gaining credibility and admiration across the globe. The sale of 40 t-shirts produced five hundred dollars from which 200 more t-shirts were purchased and sold, and this trend continued. All the profits from each order sale were put back into the business so Blackcraft would grow organically. Up until this point Blackcraft operated from the attic of a friend’s house in Orange, California. On January 11, 2013, Mr. Schubenski and Mr. Somers filed a doing business as under the laws of the state of California, as DBA Blackcraft Cult.
After the Blackcraft brand started to gain traction, Blackcraft reached out to people and bands such as Slayer, Deftones, Fall Out Boy, Kesha, Marilyn Manson, Alice Cooper, and AFI. Blackcraft gained significant exposure through this method with band members wearing Blackcraft’s shirts in press photos, on stage, and in magazine articles such as Rolling Stone and Alternative Press. While playing in a band, The Witch Was Right, Mr. Schubenski left to go on tour while Mr. Somers stayed back to fulfill orders and keep Blackcraft going. By the time Mr. Schubenski returned, it was clear that Blackcraft had outgrown the basement and needed a warehouse to fulfill the rapidly growing orders.”
- Company went public because it could not raise money as a private company.
“In January 2014, Mr. Schubenski and Mr. Somers determined that given the current financing environment they were unable to attract sufficient capital to grow their business. As a result, Mr. Schubenski and Mr. Somers determined that it was in BEI’s best interest to pursue becoming a publicly trading entity”
- Its second product could attract pump campaigns. This product, Blackcraft Zodiac, is attempting to ride the popularity of the Tinder dating APP, with over 10 million a downloads. mpre from the 8K/A filing above about this product,
“We recently created the Blackcraft Zodiac dating app. Unlike Tinder, Grindr, Hinge, and other dating apps, which rely solely on GPS, location-based technology, Blackcraft Zodiac uses the science of astrology to help singles meet their soul mate from the palm of their hand. Blackcraft Zodiac’s push technology calls upon the universe to play match-maker and helps individuals find their celestial counterpart within the same building or room. The app automatically identifies your zodiac upon registration, and makes matches with your compatible zodiac based on vicinity, age and gender preferences.”
- Thus far the app only has 5,000 downloads.
- We are not alleging that the dating app is a horrible concept but with 200 million outstanding shares and the amount of capital it will take to monetize its idea does not bode well for the stock, especially with only 5000 downloads. Furthermore, Tinder could easily add a Zodiac concept to its app. We believe that Tinder has not generated any revenue from its app yet with 10 million downloads.
- We downloaded the app and which allows members to search minors! We find the app to be inferior to Tinder especially in regards to user friendly ness.
For more timely information, particularly during the daily trading session, we urge our members to read our message board posts daily.