Stud – Rcm Technologies, Inc. (NASDAQ:RCMT)
This past Dud is now back on our radar, and we are starting to feel pretty confident that it’s quite possible that it’s on its way to becoming a Stud once again.
Rcm Technologies, Inc. (NASDAQ:RCMT) is a company that engages in the design, development, and delivery of business and technology solutions to commercial and government sectors in the United States, Canada, and Puerto Rico. The company operates in three segments:
- Information Technology, providing contracts with energy providers (electricity/nuclear power) to improve outdated infrastructure,
- Engineering, a one stop service/product offering that typically meets their customers’ IT solutions that they usually get from several service providers, and
- Specialty HealthCare Services, especially in the field of nurse staffing services.
We have been tracking this company since 2015, and have seen multiple iterations of RCMTs turn-around process. Thanks to some InfoArb in a recent conference call transcript, we believe the management team is finally getting it right, as all of the company’s divisions are maximizing their operations.
- Why we originally liked RCMT
- Significant insider ownership – CEO owned 23% of shares outstanding
- Other officers owned around 10% of outstanding shares
- Impressive Board of Directors for a microcap company
- RCMT recently won their first engagement for a CBD oil extraction facility.
- RCMT had won a Hawaii Board of Education contract through their Specialty HealthCare segment.
- Had grown EPS at a healthy rate for 6 consecutive quarters on a year over year basis.
- Why we closed our long position on RCMT
- We gave management ample time to deliver, but the company always seemed to be one quarter away from righting the ship towards consistent growth.
- We were disappointed that RCMT had underperformed in all of its divisions versus comparable companies we followed.
- Performance of RCMT during coverage window
- On December 17th, 2014 we initiated our Long position and coded RCMT as a “GeoBargain”. The stock was trading at $7.78.
- Our initial short term price target was $12.75 which we derived from assigning a P/E multiple of 25 on trailing non-GAAP EPS of $0.51.
- During our original coverage, we saw the stock’s price climb to $9.25, giving us a peak return of 18.89%, and we ultimately closed our position in March of
- 2017 at just $5.14.
- We did, however, continue to watch RCMT and on December 4, 2017 we re-added it to Maj’s Favorite Stocks Screen, and disclosed a long position as we headed into its Q4 earnings report.
- A week after this note, RCMT announced a $1.00 special cash dividend.
- The company also offered Q4 2017 sales guidance of $48 to $50 million which was inline with analyst estimates and would be the strongest quarter of the year for the company.
- On May 7, 2018 we stated that we were taking a cautious stance as the Q4 2017 conference call indicated possible softness compared to previous quarters.
- We ended up closing all positions in November of 2018 at a measly $4.53.
Why the company is back on our radar today
On March 30, 2022 RCMT reported great Q4 2022 financial results.
- Sales of $64.9 million vs $41.2 million in the prior year
- Non-GAAP EPS of $0.34 vs $0.01 in the prior year
The EPS performance blew away analyst estimates. One thing to notice is that RCMT is much more profitable than it was in 2018, when it reported the same level of revenue
We certainly want to reconnect with RCMT’s management team to understand if the blowout Q4 results that crushed analyst estimates have set a new barometer for the company or will their quarterly financial performances revert back to exhibiting unpredictable and volatile results.
We also want to understand why the first turnaround attempt did not occur on the timeline initially expected.
You can see a more comprehensive breakdown on the reasons we are taking a potentially more bullish stance on RCMT again in a FREE article we just published, “IT Staffing Trio – RCM Technologies, Inc., TSR, Inc., Mastech Digital, Inc. – The Trend Is Your Friend”
This article Illustrates that conference calls related to earnings press releases can have so much more information in them than the press release, aka Information Arbitrage. RCMT‘s conference call transcript is a clinic on how this rings true. In our article, we talk about some of the key points in the conference call that highlight the positive trends going on in the staffing industry that may help RCMT continue posting strong earnings performances in future quarters. We posit that RCMT could be worth as much as $34 If they can keep their momentum going vs. the current price of around $13 per share.
RCMT’s conference call details will also help us understand what to look for in other microcap staffing companies that we’re looking at right now.
Companies like RCMT are great case studies as to why conference call transcripts are such an important part of our research process. We might not have made perfect calls on this company, but those who followed alongside us know that the effort we put behind our conviction was supported by true diligence representative of our high standards.
A silver lining was that if you chose to hold onto the company through its tumultuous timeline you would be sitting on an over 115% return right now.
On a side note, one of our contributors actually submitted his own article on the company in late September 2019, talking about 3 catalysts – the anticipation of a favorable arbitration ruling, a foray into CBD oil extraction, and specialty healthcare initiatives with the Hawaii Board of Education. At that time the stock was trading at $2.86, so hats off to him.
Dud – Mobivity Holdings Corp (OTC:MFON)
In a recent GeoWire Weekly Issue we did a post mortem on Mobivity Holdings Corp (OTC:MFON). We once did like the company’s story, and it seemed that the niche MFON operated in was definitely in need of better customer engagement solutions – text message marketing platforms built to help restaurants more routinely and intimately connect with current and potential customers. Mobivity boasts that 30,000 restaurants rely on its intelligent messaging platform to grow traffic and make takeout easier.
After talking to management, we decided to add the stock to Select Long Disclosures Model Portfolio our model portfolio at a price of $1.97 in late March 2021. Looking back, the market had already swiftly recovered from the whiplash resulting in the now infamous and exaggerated index troughs created by COVID-19 in March 2020.
The prevailing investor concern that the economy would be decimated by the pandemic was tempered by the emergence of the coronavirus vaccine.
While that may have been the case, the story ran a little deeper than that for the restaurant business. Things were a little more…complicated.
How COVID would ultimately affect MFON was not so clear, so the idea that the pandemic would dictate restaurants to become more resourceful and clever in the way that they would continue to run their operations was reinforced by management and that the company would be able to garner even more data that restaurants could use to their advantage.
Now, after a series of lackluster financial quarters, the last one being no different than the prior three in the department of disappointment, management finally let the cat out of the bag, and it turns out that COVID did indeed affect MFON because of the restaurant industries’ protracted recovery and overall delayed adoption of digital solutions.
We ended up removing the stock from our Model Portfolio on March 31, 2022 at $0.90. During its tenure at GeoInvesting, it saw a peak return in our Select Longs Model Portfolio of over 69%.
Now, it will be hard to grasp how MFON will overcome its overall inability to perform to investors’ expectations. Because of the uncertainties, we intend to remain on the sidelines as we wait to see if the company’s pivot to a new business model that gives exposure to new high growth markets will gain momentum.