WHAT YOU MISSED FROM GEOINVESTING LAST MONTH
GeoWire Monthly, Vol. 2, Issue No. 2, February 2022
STUDS VS. DUDS
Stud – Nv5 Global, Inc. (NASDAQ:NVEE)
We Sold This One Too Early
Nv5 Global, Inc. (NASDAQ:NVEE) provides professional and technical engineering, and consulting solutions to public and private sectors. Essentially, the company has been benefiting from government and private enterprise infrastructure upgrades, propositions that require large amounts of capital to be deployed by the company’s clients.
After an interview with CEO Dickerson Wright in January 2015, we thought it immediately necessary to start comprehensive coverage on NVEE. Between our belief that the company was unfairly being typecast as a downstream victim of plunging oil prices, we knew that its business was largely unrelated to the various stages of volatile oil exploration infrastructure spending. We offered an article to our premium community as a follow up to the interview which we are making free for the next until February 18, 2022 .
The financials and guidance offered by NVEE continued to strengthen our view that NVEE’s boring story would far from translate into a boring stock price. Infrastructure build outs in its served industry, as well as management’s aggressive acquisition strategy, telegraphed a growth story that we were excited to follow.
This once microcap stock is now a small cap stud trading at a market cap of $1.55 billion, half a billion from being a midcap, and was once one of our highest conviction picks. Once we exited our position, we quickly realized we sold way too early in NVEE’s growth story.
The stock increased from $11.75 to $22.38 during our initial Select Longs Disclosure holding period between January 29, 2015 and May 19, 2015, with an ironically “meager” return of 90% compared to the 1075% return enjoyed by long term multi-year holders.
Furthermore, revenues increased from ~$100 million ~$300 million during our holding period, and profitability has increased ~200%. Today, the company generates ~$700 million in revenue, and profitability has increased nearly 5-fold.
Key Takeaway From This Study
In addition to positive industry trends, including the government doling out capital to rebuild America’s infrastructure and benefits offered by this legislation, it was the strong management team of NV5 Holdings, Inc. that ticked off one of our most important Tier One Quality Standards that we look for in a microcap stock.
More specifically, NVEEs management team is composed of seasoned industry veterans who have already proven themselves to be highly successful in their previous entrepreneurial endeavors, and have actually worked together at past companies to build successful enterprises.
The lesson to be learned here is, when you have great management teams that have worked successfully together in the past keep rolling with them.
New Infrastructure Stock Ideas?
By the way, since the passing of Biden’s bipartisan infrastructure bill already signed into law and is slated to spend $1 trillion dollars, we have begun to look at our infrastructure screens and lists that we have compiled over the last 15 years. If any of the companies on our radar will benefit from the bill and check off any criteria as Tier One quality microcaps, we’ll be on the case.
As a matter of fact, we have one on deck to disclose on which we’ve already done a significant amount of due diligence, including a deep dive visit to the company’s facility operations headquarters. Get ahead of the curve with our next stock idea, and hopefully we have the next NVEE in our crosshairs.
In January 2021, we saw markets getting crushed. I know it can be tough and depressing if you continue to obsess over every red tick.
Don’t get down – now is the time to attack and focus on your best bullish ideas and get your pipeline ready as everybody else is complaining and capitulating.
Start looking at stocks that are on sale because history shows over and over again that downturns don’t last forever.
Be ready to buy high-quality homegrown small companies that have the tier one quality characteristics we look for for our members.
Forget the Noise and Negative Energy, Get Back to the Basics
If you are new to our GeoWire and GeoInvesting, we would love for you to read one of our most liked articles on how to become a Full Time Investor. It offers 10 pieces of great advice on what you can do to really focus on your research and idea discovery on a company level, instead of dwelling on the state of a corrective market – the causality of transient casualties.
My full-time investing career was one of trial and error, trial and tribulations, at first, but I settled into a strict regimen of iron clad research standards that helped me forge ahead to succeed over the long haul:
- I honed an investment style that I eventually called my own
- I checked my emotions at the door
- Passion was at the heart of why I did what I did
- I connected with a strategy, initially borne from some inspiration from books by Peter Lynch, Benjamin Graham, and James C. Collins
- Research tools like Valueline, tears sheets, CEO Letters, SEC filings, and yes, even Seeking Alpha, were my daily breakfast, lunch and dinner
- Staying hyper-focused was a discipline I adopted to drown out the droning sound of talking heads in every corner of investing media
- I used the concept of K.I.S.S., keeping it super simple, when it was obvious that I had to do so
- Investment challenges were a staple of my early career
- I wasn’t too proud to proclaim that both my own Dad, and Peter Lynch were my mentors that helped to shape who I am today
- If you don’t have a sell discipline, you might as well stop now
- Investing is a lifestyle, so make sure you manage it properly, as you would other aspects of your life.
Read more about these tenets here.
Dud – Determine, Inc. (NASDAQ:DTRM)
There are often times where investors become too attached to a stock that we are blind to its shortcomings. For us, this was the case with Determine Inc. (DTRM) a company that helped its customers manage their contract life cycle solutions through a recurring revenue software as a service (SaaS) platform.
During the turnaround of this particular company, well-known investors actively supported it, gaining the confidence and interest of many others looking to invest in the stock. DTRM quickly climbed 100% to around $7.00, then gradually descended through numerous stock offerings as the turnaround failed to take off. Despite the fact that larger investors continued to fund the company, their contracts were structured so that they would benefit to the detriment of shareholders.
A common mistake made by investors is that they misread company culture. With DTRM, the problem appeared to be their broken business model. The company also went through multiple CEOs who had little success in restructuring the company’s business plan.
Things started to turn around when the company promoted a tenured marketing employee who knew the business inside and out and had worked for it when the company excelled in the past. However, under his leadership, the company still struggled and did numerous equity offerings, eventually filing for bankruptcy.
The lesson to be learned here is that when you invest in companies that overuse equity as a means to finance their operations, especially amid numerous management changes, it is often a prescription for a disaster for you if you get caught up in false hope that the company will overcome its serial propensity to disappoint shareholders.
2021 RETURNS INSIDE OF GEOINVESTING
So far in 2021, we have issued 13 closing Calls to Action on companies tenured on our Select Long Disclosures List for varying periods of time.
Through the end of September 2021, the average return per closing CTA was 113.41%, a number that was significantly elevated by INTZ and CLPT.
There are 17 Calls to Action initiated and still open in 2021. While we cannot show you the premium table, our current average return per stock is 30.71%, compared to year-to-date numbers of about 12% for the DOW, 16% for the S&P and 13% for the NASDAQ.
RESEARCH AND IDEA PIPELINE
Our goal for 2022 is to conduct one to two Live Fireside Chats with our Tier One Microcap companies per month. So far this year, we have interviewed the CEO of Orbit International Inc (OTC:ORBT), Mitchell Binder as well as the CEO of Wavedancer, Inc. (NASDAQ:WAVD), Jamie Benoit.
So, we’re off to a great start with our New Year’s resolution, and have been thoroughly impressed with both companies and the wonderful insight we received from their CEOs.
We’re incredibly excited for our next Live Fireside Chat with a company that has above average growth, a cheap valuation and Multibagger returns written all over it. This company meets 9 of our 10 tier one quality microcap criteria (see this document), it is servicing growing hot sectors like healthcare, renewable energy and electric vehicles, and management is executing a turnaround that is easy to understand.
The company has characteristics of past multibaggers we’ve invested in.
The company reported its highest quarterly profit in 11 years, with 5 straight profitable quarters of growth year over year. Based on our initial due diligence, we believe the company can report several more quarters of strong top and bottom line growth. Stay tuned for an opportunity to register for this call and join our next Live Fireside Chat.
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WHAT YOU MAY HAVE MISSED THIS MONTH
Weekly GeoWire Highlights, Education and More
1st Month 2022 Down, 11 To Go… [GeoWire Issue No. 17]
January 30th, 2022
There’s been a retail investor exodus from the markets, as is evidenced by Robin Hood’s disclosure of a widespread disengagement of its users over the past 2 quarters. Could it be that the existence of a vastly inexperienced and isolated investor base has finally manifested itself as a situation where the first sign of market turmoil turns into a flight to safety? How many have been irreversibly monetarily affected, in turn causing a disaffected state of mind? After all, 2020 to 2021 saw the biggest influx of retail investors in history, over 10 million.
A Continued Dive into WAVD [GeoWire Weekly No. 16]
January 23rd, 2022
We thought that was an important piece of intel to probe into during our conversation because other than a brief discussion of Gray Matters in a few press releases, we never really got a full look into what this company does. Jamie does a great job of talking about the problems that Gray Matters is solving and how its use of the blockchain should not be viewed as associated with the hyped up and pump dump conversations surrounding worthless cryptocurrencies.
Seeing A Breakdown in Highflying Stocks That Could Signal A Shift in Investor Approach to Valuation [GeoWire Weekly No. 15]
January 17th, 2022
Since 2010, there’s really been this disconnect in the market. A lot of high flying stocks, with high growth rates and revenue with perhaps little earnings per share growth or maybe even negative cash flow, had risen to nosebleed valuations in terms of prices to sales and enterprise value to sales ratios. You can’t value them on other metrics, really. Some of them might have weak balance sheets, using debt and leverage to grow their revenue.
Short Term Information Arbitrage Bleeds into a Longer Term Play For Technology Stock [GeoWire Weekly Issue No. 14]
January 9th, 2022
As we enter the next week and in case you missed it, we wanted to reiterate the Call To Action that was put out on a technology stock that was originally in our FundiTrading Model Portfolio. That portfolio is now empty since we moved the stock into our Selected Longs Disclosures List. This does not mean that we think this market environment won’t provide other short-term information arbitrage opportunities. The concept was covered in this short PodClip by Maj while he attended a microcap conference: