Stud (in the making) – Canterbury Park Holding Corp (NASDAQ:CPHC)
One of Minnesota’s largest and well-known entertainment venues, Canterbury Park hosts pari-mutuel wagering and card games at its facility in Shakopee, Minnesota. Pari-mutuel wagering is offered on live thoroughbred and quarter horse races each summer, and simulcast wagering on races held at out-of-state racetracks is available year-round.
Canterbury Park’s Card Club hosts a variety of poker and casino style card games 24 hours a day. Revenues also come from related services and activities, such as concessions, parking, admissions, programs, and from other entertainment events held at the facility.
We touched briefly on our past coverage of CPHC in a recent “Special Sunday Alert” highlighting how Information Arbitrage we discovered during a preliminary March 20, 2022 call with management culminated in a research note for our Premium Members.
To refresh your memory, an Information Arbitrage exists when:
“a disconnect between stock prices and available public information on a company is noticeable and monetarily worth pursuing. Sometimes, the mispricing of micro-caps can be substantial. This strategy has “paid dividends” for many investors. Part of the reason the “InfoArb” opportunity exists is that investors often incorrectly label ALL microcap stocks as pump & dump schemes promoting companies with no revenues and profits.”
Our research conveyed that we believed the stock may eventually see a large expansion in its valuation multiples as new management begins to exploit untapped growth opportunities in its casino operations. The stock was trading at $19.27.
Canterbury is throwing off a crazy amount of earnings and cash flow and carries very little debt. At the time of our interview, CPHC had a P/E of only 5x. So, it was a best of breed company in its industry, selling at the lowest valuation compared to its competitors who tend to carry mounds of debt.
On April 27, 2022, just over a month after announcing that the company had entered our research funnel, CPHC hit a 52 week high, trading at $32.92, about a 52% gain from the initiation of our coverage.
This is a perfect example of why we focus so much of our energy on finding and highlighting InfoArb for our Premium Members, and why we believe this company certainly has the ingredients it needs to become a Stud. It’s also a perfect example of why investors who are obsessed with performing their own research subscribe to Geoinvesting. We bring ideas to our subscribers very early in our research process and continue to provide updates as our due diligence progresses. We do this because we know price discovery on mispriced stock can occur over time, sometimes within days in the microcap universe. We’d like to congratulate any of our subscribers who were able to take advantage of this research.
Dud – Liberated Syndication Inc (OTC:LSYN)
Per an SEC filling highlighting the results of a hearing on LSYN, the stock’s listing was revoked after failing to comply with Exchange Act Section 13(a).
This delisting effectively left anyone that was still holding this stock with a stack of “useless paper.”
This company is a clear example of what happens when management shirks its fiduciary responsibilities it owes to shareholders. Unironically, this is delisting number 2.
When we went speculatively long on LSYN on May 31, 2019, we knew the risk involved. Prior to our several-year bullish stint on the company, it was a much different story.
The company was a spinoff from Fab Universal, a U.S. Listed China-based media kiosk company. We exposed Fab’s failure to disclose materially substantive debt in its U.S. filings, putting it squarely on the SEC’s radar (and thin ice) for the foreseeable future. This was on top of a multitude of other damning articles by other well-known short-side authors questioning the legitimacy of the company’s operations.
After we exposed the company, shares of Fab Universal eventually traded for under a penny.
In other words, LSYN needed not to mess up too badly for shareholders to be exposed to unfortunate results, as is happening today.
In light of the company’s delisting last month, their past dereliction of duties, although different in nature and a bit more opaque, turned out to be a window into what was just transpired.
We touched upon this bear story gone bullish in an article titled, “Liberated Syndication: An Unlikely Spinoff Takin Off”, giving a little bit of background into the company’s past operations and ultimate demise (delisting number 1), and the transition into the spun off company, Liberated Syndication, in the business of podcasting and webhosting, an industry accelerating at a record pace.
After LSYN was spun off, the stock had an incredible run. We eventually decided to go bullish on the stock in May 2019 at $2.70 per share.
They seemed to have cleaned themselves up, and the CEO came across as knowledgeable and motivated to take the business to new heights.
Although the stock made a small run here and there, it never really took off like we wanted it to. We still thought it had potential, and we honestly got caught a little blindsided by the turn of events.
Having said that, in the back of our minds, we are keenly aware, especially now more than ever, that there is always delisting risk with companies of this size due to the Dark Stock rule, a new SEC standard that we extensively covered in 2021 that requires companies trading on the OTC to regularly file financial reports, or suffer certain consequences.
At the end of the day, this can be chalked up to a risk/reward play in the realm of Microcaps, where management is given a chance to reconcile with its past misdeeds to carve out a brighter future. It is worth noting that if the company ever goes public again, investors’ shares in the stock would be reinstated.
Additional notes: To be clear, we were directionally right on the growth story, but shame on us for betting on a company that was still being run by the CEO who was heading operations when we outed Fab Universal as a fraud. We just assumed that because the CEO was eventually kicked out of the company that a new turn of fortune would arise.
On the heels of new management and an activist investor, the company has been making operational strides, growing revenue and making important acquisitions. Ultimately, we believe the activist will not let the company sit in the dark and will make their financials current and have the company re-IPO
Keep in mind that there is risk that the company gets sold privately, and does not relist.
The lessons here are:
- Beware of companies that don’t report their financials.
- Heed unresolved fraud issues the company might have in its past.
- Remember to size your positions accordingly.
Luckily, this is only a very small speculative position for us.