WHAT YOU MISSED FROM GEOINVESTING LAST MONTH
June 2022, Volume 2, Issue 5
MULTI-BAGGER CASE STUDY
Repro Med Systems, Inc. (NASDAQ:KRMD)
Key action dates include:
- 6/2/2014 – Initial selection for Long Model Portfolio disclosed at $0.24
- 8/7/2018 – Added to Favorite Model Portfolio at $1.37
- 1/2/2019 – Added to Fave 5 Model Portfolio at $1.65
In October of 2014 we published our first research note on Repro Med Systems, Inc. (NASDAQ:KRMD), a company that manufactures and commercializes innovative and easy-to-use specialty infusion solutions that improve quality of life for patients around the world.
Their main product, the FREEDOM60 Syringe Infusion Pump, is designed for ambulatory medication infusions and home health care patients. The infusion pump delivers medications to Primary Immune Deficiency patients by injecting immune globulin (IgG) under the skin as a subcutaneous administration. It also does not require electric power.
Insurance Reimbursement Advantage
With insurance reimbursement on a severe decline, there is a need for a low-cost, effective alternative to electronic and expensive disposable IV administration devices for home care.
The FREEDOM60® provides a high-quality delivery to the patient at costs comparable to gravity-driven infusions. In addition, it is targeted for the home health care industry, patient emergency transportation, and for times when low-cost infusions are required. In 2007, KRMD’s competitive advantage was enhanced when the FREEDOM60 was:
“Centers for Medicare and Medicaid on May 21, 2007 for use under code E0779 which increases the reimbursement for the Freedom60 for all billable syringe pump applications approved by Medicare.” – Page 5 FY 2007 10K
When we found the company, even though it was generating a small amount of revenue, we noticed that much of it was recurring, and the company was slowly increasing quarterly sales, both year over year and sequentially. The recurring revenue is generated from disposable needle sets that patients have to buy to use with the pump that they have purchased . We presumed that that rate of growth would accelerate due to the new Centers for Medicare and Medicaid services change referenced above.
Even at that small revenue level, KRMD was not burning too much cash or losing a lot of money and was selling at a reasonable price/sales multiple of 4x. We presumed that eventually, if the company could start aggressively growing revenue, and maybe reach even profitability, that the valuation multiples would expand dramatically.
We became more bullish when an activist investor got involved in the company and joined the board around May 2016..
This was a key development because the company was in the midst of addressing a warning letter issued by the FDA. He helped put together a team to resolve the FDA’s concerns. Furthermore, this activist investor was aggressively buying stock in the 30 to 40 cent range, but kept buying stock even as the price continued to rise.
Eventually, the FDA warning letter was lifted, and KRMD made a bullish run to over $1 per share.
The activist investor kept aggressively buying shares. Then the company got listed on the NASDAQ. In the end, the company made a huge run to hit a high of $12.70 in April 2020.
However, at that price, the company was selling at a crazy high price to sales ratio of ~23, and we eventually relayed a message to our premium members that we were going to lighten up on the position. We eventually closed out the position from one of our model portfolios.
Now, after experiencing some growth pains, the stock is sitting at around $2.20 with a new management team. We recently noticed that the activist is buying shares again. So, we want to watch closely to see if this new team is addressing some issues which contributed to the stock’s decline to current levels.
Specifically, the new management team is trying to modernize the equipment that the company uses to help improve its effectiveness, expand its use cases, and improve gross margins. In May 2021 the company hired a CEO from Becton, Dickinson, Linda Tharby to get these things done.
And so far, she has done a great job meeting or exceeding restructuring initiative targets.
In the end, the company has revenues of ~$25 million and it’s chasing a total addressable market that’s valued at $1.3 billion. So, it’s possible with a over 60% market share position and a first mover advantage that the company has a good chance of turning around. However, we have to be mindful that there are competitors out there right now trying to compete with the company.
However, according to a company, their solutions cannot be used in therapies that require large volumes of infusion.
A big factor to consider right now is that the new environment that we are in is preventing companies from making money or from attaining premium valuations that were possible over the past 10 years.
So, we think it’s imperative that the company starts generating profitability sooner than later.
On one final note, we do think that the company is a good takeover candidate because of its recurring revenue and leading market share position, and more so now that it’s valued at a price of sale of ~4x.
In a recent article published to CNBC, titled “A paradigm shift has begun in markets, saysMorgan Stanley’s Ted Pick. Here’s what to expect,” Ted Pick, a long term co-president at Morgan Stanley, discusses his viewpoint on a fundamental shift in the global markets, the transition from the economic conditions that followed the 2008 financial crisis, and the new business cycle he thinks could emerge.
“It’s an extraordinary moment; we have our first pandemic in 100 years. We have our first invasion in Europe in 75 years. And we have our first inflation around the world in 40 years,” Pick said. “When you look at the combination, the intersection of the pandemic, of the war, of inflation, it signals a paradigm shift, the end of 15 years of financial repression and the next era to come.”
We found this article to very clearly point out what we have been saying for the last year or so, “stock picking is back,” and picking Tier One Quality companies is now even more important.
“This paradigm shift at some point will bring in a new cycle,” he said. “It’s been so long since we’ve had to consider what a world is like with real interest rates and real cost of capital that will distinguish winning companies from losing companies, winning stocks from losing stocks.”
We have been quietly bringing new winning ideas to our subscribers, beating the market by a wide margin. For example, so far this year we have highlighted 8 new stocks for our Premium Subscribers, and as a whole have performed quite well:
|Rcm Technologies, Inc. (NASDAQ:RCMT)|
|Notes||IT staffing company where we identified Information Arbitrage on the Q1 conference call.|
|Verde Agritech Plc (OOTC:AMHPF)|
|Notes||Agri-tech company that has reached an inflection point in growth and is financing its aggressive growth without the need to raise capital.|
|Notes||One of our current Top 5 selections that we believe is just getting started|
|Notes||Cheap IT Staffing company benefiting from tight labor market.|
|Notes||Stock has pulled back from its highs and we see near 50% upside, again. Best of breed player in the casino industry|
|Notes||Heavy equipment rental business|
|Notes||Stock trading under a dollar. Software to help diagnostic medical device companies go through the FDA approval process. Contracts|
|Notes||Down since added to our watch list to determine if management turnaround efforts have inflected|
This works out to an average of 31% vs. -22%, -13%, and -9% for the NASDAQ, S&P, and DOW, respectively.
We are now more convinced than ever that the way money was made before the irrational investing behavior that defined the last 15 years took center stage is back. This is a golden opportunity.
Using certain sales growth and EPS growth benchmarks with clear valuation protocols is working again. Our fundamental driven process, centered around companies that meet our Tier One Quality Standards, allows us to capture short term returns, along with multi-bagger returns.
With a GeoInvesting Premium Membership, the research behind our Model Portfolios Tier One Microcap discovery will show you how.
RESEARCH AND IDEA PIPELINE
We are pleased to announce the launch of a new product brought to GEO by MS Microcaps (MSM).
This new platform will focus on building a single actively managed portfolio of high quality timely stocks. Given the opportunities that the correction in the stock market is providing us with, we think this is a great time to partner with MSM in this product launch. It will entail executing a disciplined approach to interim gains when they are achieved. This should give you clarity on a more frequent basis to help to protect profits and manage risk.
The platform will provide:
- Actively Managed Diversified Portfolio
- A Run to $1 Million Portfolio
- Exclusive Chat Room
- Weekly Research and Raw Cliff Notes
- MicroCap Information Arbitrage Tools
For those interested in learning more about (MSM) Active Portfolio, and our Run To $1 Million Challenge, visit MS Microcaps’ site here.
PROGRESS, YEAR TO DATE
GeoResearch ArticlesPodClipsFireSide ChatsContributor ArticlesManagement Morning Briefings
FAVORITE IDEA – PITCH OF THE MONTH
Our Favorite idea should come to no surprise to those that follow along with our Weekend Weekly Recaps. Over the past month we have had multiple interviews with the CEO and brought him on as a guest speaker for our Management Morning Briefing last week.
This company specializes in mobile software management and software as a service (SaaS) solutions. More specifically, the company offers solutions to help companies understand their customers more and to make sure that employees are following proper protocols when it comes to strategy, branding and marketing.
In our most recent chat we were pleased to hear the CEO’s take on the post Q1 2022 earnings update, and his thoughts on the company’s position during this current inflationary climate, the state of the industry and its acquisition opportunity pipeline. We feel that the company possess many appealing multi-bagger traits:
- 100% recurring revenue.
- Forecasting to grow revenue at least 50% in 2022, which comes on the heels of 25% revenue growth in 2021.
- The company doesn’t have to raise capital to grow.
- Management is penetrating new markets and finding ways to generate additional revenue from its current customer base.
- Given all the positive tailwinds, the stock is only selling at a price to sales of around 0.6x on 2022 sales guidance.
- We see at least a triple in the stock’s price from current levels.
WHAT YOU MAY HAVE MISSED THIS MONTH
Sniffing Out A Bullish Scenario Playing Out For Remote Monitoring and Power Generation Company [Geo Weekly No. 34]
May 30th, 2022
With 3 million miles of mainline and other pipelines that link natural gas production areas and storage facilities with consumers, there is no shortage of the need to monitor, maintain and protect the various components that make up this complex network of energy transmission. Herein lies one of the sweet spots for Acorn Energy Inc (OOTC:ACFN), a company we cover in our research and in which we added the stock to one of our Model Portfolios back on December 10, 2020 after the company’s CEO, Jan Loeb, purchased a lot of stock on December 8, 2019. This in fact was the first time we noticed the company since we sat down with management at an LD Micro Conference a few years ago, and were actually able to schedule and hold a Fireside Chat with Mr. Loeb the prior day! It should be noted that he has been systematically buying shares for the past 3 years, with the most notable transaction occurring in 2019, showing investors his continued and unwavering confidence in the company.
May 22nd, 2022
I’d like to talk about an important theme I’ve been mulling over recently, and is related to two new PodClips I recorded over the weekend, which can be listened to at the bottom of my commentary. Markets are crashing and correcting right now and everybody’s talking about stocks getting revalued to adjust for the new environment, but that doesn’t necessarily mean that you need to panic sell out of your favorite stocks that might be going through a rough patch. In the first clip, I talk about a process of examining the staying power of your current portfolio and how to find new opportunities in the current market environment.
Research On Deck – Net Medical Xpress Solutions: Will it Pass Our Litmus Test? [GeoWire Weekly No. 32]
May 15th, 2022
Next on the hot seat is Net Medical Xpress Solutions Inc. (OTC:NMXS), a company engaged in providing solutions to the telemedicine industry. As with many other microcap stocks that come into our internal momentum screening system, we more often swipe left than right, as most fail our initial litmus test of adhering to the conditions that allow it to enter the next phase of our analysis. We did manage to execute a tepid swipe right with NMXS, a stock we had never covered, but were intrigued with it, when at $0.09, it popped up on our screener after it reported strong Q1 2022 financial results on May 4, 2022. Since then, it’s risen to $0.41, a 355% move.
May 8th, 2022
We know it’s not easy to have a mindset to keep performing research when your portfolio might be getting decimated, but there’s always a bull market somewhere. Even though a diversified portfolio still might not go up during these rough patches, we can maintain some level of optimism by finding a few stocks to cherry pick while we are waiting for things to turn to positive. For example, we’d like to point you to three stocks that entered our research funnel this year. We’ve covered them in either Reasons for Tracking articles or a high alert research summaries. They’ve performed nicely, bucking the market trend.
May 1st, 2022
Keep in mind that one of our goals is to provide you with insights into how we identify red flags while we are performing bullish research. This is especially relevant if you are or want to aspire to become a full time investor. Or maybe you just really enjoy the research process and digging into companies before you buy them. If that’s the case, then this case study is for you.