WHAT YOU MISSED FROM GEOINVESTING LAST MONTH
April 2022, Volume 2, Issue 3
STUDS VS. DUDS
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- Information Technology, providing contracts with energy providers (electricity/nuclear power) to improve outdated infrastructure,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.
Maj and one of his analysts, Jan Svenda, recently recorded a skull session to conduct some further due diligence on some companies that are currently in our research funnel. We thought it would be nice to give Premium Subscriber’s a wider perspective on what part of our process looks like in bringing Tier One Quality Microcaps to our community.
We talked about Crexendo, Inc. (NASDAQ:CXDO), an underperforming (in terms of stock performance) cloud communication play we have been following for a while. We went over their earnings and how the market unfairly punished the stock and why we feel the bullish growth trends are unchanged and even stronger than ever.
We also mentioned Konatel Inc (OTC:KTEL). This is another cloud play attached to a niche telco offering that we are fans of. We discussed the near-term catalyst for the shares to truly skyrocket. Earnings are coming out by Friday .
Lastly, we discussed Verde Agritech Plc (OTC:AMHPF) (NPK.TO), a Brazilian fertilizer company. The play here could be an asset which could supply Brazil with potash for the next 60 years. We discuss what could go right and wrong. If things go right, we think it’s not gonna be a 10-bagger.
To view our entire research on these companies and to see our recent Calls to Action CTA’s, become a premium member
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
We are happy to announce a new product at GeoInvesting, and we think it might be one of our best ones yet. We have begun rolling out our Management Morning Briefings, which will serve as a sister product to our Fireside Chats, and allow us to get more regular updates from the management of our favorite companies.
We have started hosting one to two calls a week in the morning and last about 30 minutes. Highlighted are the most important recent happenings with the company.
We have hosted five MMBs so far – Crexendo, Inc. (NASDAQ:CXDO), Stephan Co (OTC:SPCO), Altigen Communications Inc (OTC:ATGN), Cryo-cell International, Inc. (NASDAQ:CCEL), and Richardson Electronics, Ltd. (NASDAQ:RELL) – and have highlighted a few clips here. Become a Premium Member at GeoInvesting to participate in these calls live, and have a chance to ask questions and participate in our next Briefing.
On a side note, we have begun working on clipping out parts of our most recent Live Fireside Chat with Richardson Electronics, Ltd. (NASDAQ:RELL), and we will be sharing these with our Premium Subscribers very soon. We are also developing a quick and easy way for our members to view the very best parts of these chats.
PROGRESS, YEAR TO DATE
GeoResearch ArticlesPodClipsFireSide ChatsContributor ArticlesManagement Morning Briefings
WHAT YOU MAY HAVE MISSED THIS MONTH
Weekly Wrap Up Highlights, Education and More
Before we go on, we’d like to remind you that our position in MFON is now closed and the stock is no longer in any of our Model Portfolios. We did like the company’s story, and it seemed that the niche MFON operated in was definitely in need of leaders – text message marketing platforms built to help restaurants outperform their peers. Mobivity currently boasts that 30,000 restaurants rely on its intelligent messaging platform to grow traffic and make takeout easier. As the stock climbed, we took another stab at it, adding to our long position at a price of $1.97 in late March 2021, a short time after another appearance by Dennis on Little Grapevine as a follow up and to give more color on what appeared to be bullish indicators that the business was on the cusp of achieving some great milestones and relationships.
The first theme is that of Morning Management Briefings that serve to inform us, and therefore you, about current events pertaining to the companies we follow, especially at times surrounding important events, like earnings. You might already be aware that we conducted a few short conversations, the last 2 on 2/22/2022 being with Jerry Fleming, CEO of Altigen Communications Inc (OTC:ATGN) and Jad Fakhry who sits on Stephan Co (OTC:SPCO)’s Board of Directors, and the first a week before that with Doug Gaylor, President & COO of Crexendo, Inc. (NASDAQ:CXDO) . Below are a few clips from the briefings, 1 from the talk with ATGN and 1 from SPCO that you might find informative.
As you know, the company’s President and COO, Doug Gaylor, participated in our new Management Morning Briefing service on March 16, 2022. CXDO was the second company to have been featured in such a manner. Altigen Communications Inc (OTC:ATGN) is next in line, this week. Even though the stock isn’t performing commensurate with the strong sentiment being conveyed by the company, the narrative has not changed and is still echoed in the briefing. A key piece of input we wanted to get clarity on from Doug was how he felt about the competitive landscape of the UCaaS industry, especially in light of Ringcentral, Inc. (NYSE:RNG) 36% year to date decline in stock price. More specifically, is the decline in RNG’s price a warning that the industry growth outlook may be changing? We also wanted to get Doug’s opinion on how CXDO is positioned to compete as Microsoft begins to aggressively roll out its UCaaS product offerings. It’s worth noting that CXDO is now selling at a P/S of 2.2 on current 2022 revenue estimates.
It’s possible that with an overwhelming amount of depressed microcap stock prices, that there might be a diamond in the rough waiting to be discovered. With the tools we have in house, it’s our aim to as quickly as possible identify these candidates using valuation metrics that meet our standards.
In March, we’ve already received two premium member contributions – one from Andrew Ing (@AndrewIng8) on a stock based in Australia, which is a first for our community, and another from Tim Heitman (@Investing501), who regularly published articles to GeoInvesting in 2021. We’d like to extend a thank you to them for choosing GeoInvesting as the platform to share their ideas for all of us to appreciate.
Research Contributor Closes Position in USAK, Now 3 for 3; Video Segments Of Interview with Diversified Company Paint Promising Picture GeoWire Weekly No 21)
Below are highlights of subject matter related to the company’s tube/magnetron/microwave business and use cases, the replacement of lead acid batteries with longer-life ultracapacitor modules in wind turbines, as well as the profitability of these capacitors. We are extremely excited about the company’s involvement in the wind turbine industry, as its ultracapacitor solutions extend the useful life of equipment needed to operate turbines when compared to the status quo lead acid lead acid battery solution. Furthermore, the company is starting to address the needs of lab grown diamond and 5G markets, hot and growing sectors where RELL is seeing increased order flow.
Today’s analyst estimates for ZYXI of $20.47 (Sentieo) are more than 185% higher than ZYXI’s current price of $7.00, a price that we think might represent a “coming back down to earth” scenario, where valuation should be reassessed, even in light of a new February 17, 2022 report by Night Market Research on the company titled, “Zynex: UnitedHealthcare Terminating Contract – An Undisclosed Loss That Accounts For 50%+ EBITDA.” Night Market Research thinks that guidance will need to be dropped, but is this really the case? Will the UnitedHealthcare Network want to get back money for which they were supposedly overbilled, or will they have already lost their leverage and window of opportunity, being that they were originally part of Zynex’s network? Will the new acquisition dilute shareholders since more than half of it was stock-based, and how accretive will it be? How will this affect estimates?
On this Super Bowl Sunday, we’re highlighting a PodClip recorded by Maj on Friday where he talks about a few things. First he reflects upon his investing over the years and how the market is rotational. After years of reckless behavior where investors ignored, valuations came into play and the numbers matter again – microcaps being a big beneficiary of this pattern of capitulation and resetting.
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.
Origin Agritech 20F Hints At Silver Lining Amid Delays; Orbit International Fireside Chat [GeoWire Weekly Issue No, 18]
Origin Agritech Limited (NASDAQ:SEED) filed its 20F after the close last Friday. We are obviously not pleased with the company’s propensity to overpromise and underdeliver. However, a lot of this has to do with the government delaying the GMO positive process that appeared to be a goal that should have been met by the end of 2021, according to information published on various sources in China. Nonetheless, we still think that Dr. Gengchen Han, the chairman and founder of the company, needs to step up to the plate and buy stock in the open market to help instill investor confidence in the company’s future.