How To Use “Inflection Point Investing” to Make Money – NOIZ Case Study

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How To Use “Inflection Point Investing” to Make Money – NOIZ Case Study

By Maj Soueidan, Co-founder GeoInvesting

On July 19, 2016, snack food giant Utz Quality Foods Inc. reached an agreement to acquire microcap company Golden Enterprises Inc. (NASDAQ:GLDC).  For snack eaters, that news was of little consequence.  To us, it was a huge deal because it increased the value of our original investment in GLDC by 100%.  Better yet, it was a pick we brought to our premium members only 42 days prior to the announcement.  Below, I visit how Geo’s investment in Micronetics (Old Symbol NOIZ) reaped similar returns.

Microcap stocks belong to one of the best asset classes from which investors at any level can gain an advantage.  Sometimes it’s a challenge to convince others that this is actually the case.  This is part of the reason why I co-founded GeoInvesting.  I felt a responsibility to dispel the myth that investing in microcaps and even nanocaps was something that investors should avoid.

Over the years I found that if it’s quality that you’re after, you need the skills to find great companies you can have conviction in.  From my experience, outsized stock returns come from finding companies at inflection points in their business.

Investing Based on Inflection Points

Inflection points can serve as triggers for you to invest in particular stocks right before the meat of their growth cycles or at a time when they’ve improved their risk profiles for various reasons.  I’ve found that the identification of inflection points has helped me pinpoint companies that tend to become acquisition targets.  Of over 40 stocks that have been both the focus of our research AND acquired, some of these acquisitions were actually predicted by my team; others were just a byproduct of what happens when good research is rewarded.

I am going to share a case study with you on a company called Micronetics (NOIZ), a manufacturer of microwave and radio frequency (RF) components and integrated subassemblies used in a variety of defense, aerospace and commercial applications. NOIZ agreed to be acquired by Mercury Computer Systems on June 11, 2012 at $14.80, greater than 100% over the price we disclosed it as one of our top stock picks.

noiz acquisition


NOIZ – A GeoNugget To Remember

assetclass50

Asset Class – Common Equity

industry50

Industry – Defense Contractor Communication and network products

catalyst50

Catalysts – Margin Expansion; More consistency in EPS growth; Access to more defense contracts; Better product lineup; Industry transformation creates opportunities

mc50

Market Cap –  At time of report – $31 Million; At time of acquisition — ~68 Million


Following is a chronological log of how we kept our members informed leading up to and including the acquisition of NOIZ.

Friday, September 23, 2011

Comments & Business Outlook

First Quarter 2012 Results

  • Net sales for Q1 FY 2012 were $10,039,293, an increase of $672,599 or 7% compared to $9,366,694 for Q1 FY 2011.
  • Net income of $564,372 or $0.12 per diluted share, as compared to a net income of $499,850 or $0.11 per diluted share for Q1 FY 2011.

David Robbins, Micronetics’ CEO stated, ”Our Q1 FY 2012 revenue exceeds our historic reported revenue for any quarter by over $0.6M. We are pleased with this positive trend in revenue, earnings, backlog, and subsystems bookings for the quarter. We are also optimistic about booking additional subsystems orders this calendar year, which we expect will continue to fuel positive financial performance.”

Backlog is $31 million with approximately $10 million in bookings for the quarter.


Friday, October 28, 2011

Comments & Business Outlook

Second Quarter 2012 Results

  • Net Sales for the second quarter ended October 1, 2011 were $11.6 million, an increase of 29% compared to $9.0 million for the second quarter ended September 25, 2010.
  • Net Income for the second quarter ended October 1, 2011 more than doubled that of the prior year’s second quarter. Net income was $1.1 million, or $0.24 per diluted share, an increase of 129% compared to $0.5 million, or $0.10 per diluted share, for the prior year’s second quarter.
  • Backlog was approximately $29 million with approximately $11 million in bookings for the quarter ended October 1, 2011.

David Robbins, Micronetics’ CEO stated, “I am pleased to report that Micronetics had another quarter of continued strong financial performance and was positively impacted by operational leverage. Our second quarter fiscal year 2012 revenue and earnings exceeded any prior quarter’s reported revenue and earnings in our history. We remain positive in our ability to convert our existing backlog into profitable revenue while booking new subsystem business that we believe will support organic sales and earnings growth.”


Thursday, November 17, 2011

GeoSpecial Notes

GeoNuggets® – Quick Check List Highlighting Undiscovered OpportunitiesMicronetics (NASDAQ:NOIZ)

On October 28, 2011 we coded NOIZ as a GeoSpecial @ $6.80

Company Description: Manufactures microwave and radio frequency (RF) components and integrated subassemblies used in a variety of defense, aerospace and commercial applications.

Criteria Check List

NOIZ Meets 8 out of 10 of the most important GeoBargain® Requirements

Requirement Comments
greencheck1 Recent 52-week High (generally within 3 months) Yes (8/16/2011)
greencheck1 Strong EPS Growth Rate As of 2nd quarter 2012
yes > 30% EPS Growth Rate 2nd Qtr. 2012 EPS increased 129%
yes GeoPowerRanking (GPR); Number of consecutive quarters that we expect EPS to grow by at least 30%. (20% may be acceptable under certain circumstances) 3

To see more requirements, reasons for optimism, as well as potential valuation, see our November 3, 2011 GeoNugget.


Monday, November 28, 2011

Comments & Business Outlook

HUDSON, N.H.–(BUSINESS WIRE)–Micronetics, Inc. (NASDAQ:NOIZ) announced today that it has been awarded an initial production order valued at approximately $2.4 million from a leading precision antenna system manufacturer for the supply of high performance microwave subsystems. Each subsystem, which consists of a transceiver, on board computer, power supply, and a high power amplifier (HPA), will help satisfy the demanding need for a reliable, high-speed broadband satellite based connection into commercial and military aircraft for a broad range of uses. Hardware deliveries are targeted to commence in this fiscal year with a 6-month period of performance.

David Robbins, Micronetics’ CEO stated, “We are happy to have secured this initial contract. This product and design win reflects our latest in engineering expertise and we are optimistic that demand for this product will contribute to our growth. We targeted airborne high speed data links based on the strength and diversity of commercial and military applications, consistent with our strategy to leverage our strong technology capabilities and breadth of product offerings across multiple end markets.”


 Monday, January 30, 2012

Comments & Business Outlook

Third Quarter 2012 Results

  • Net sales for Q3 FY 2012 were $12.0 million, an increase of $4.4 million or 58% compared to $7.6 million for Q3 FY 2011.
  • Net income for Q3 FY 2012 was $902,395 or $0.20 per diluted share as compared to net income of $101,123 or $0.02 per diluted share for Q3 FY 2011.

David Robbins, Micronetics’ CEO, stated, “We are pleased to have achieved another quarter of record revenues and strong earnings performance. This growth is a direct result of pursuing and investing in our customers’ high performance subsystem programs. Building upon our positive momentum from the past twelve months, in fiscal year 2012 we’ve already been awarded approximately $12 million in multi-year development and production subsystem contracts. These are primarily in support of US DoD electronic modernization and commercial aerospace programs. We continue to be confident in our ability to complement these large subsystems bookings with steady, profitable core component bookings.”

Backlog was $26 million at the end of Q3 FY 2012.


Friday, June 1, 2012

Comments & Business Outlook

Fourth Quarter 2012 Results

  • Net sales were $12,258,367 for the quarter ended March 31, 2012, an increase of $2,913,873 or 31% as compared to $9,344,494 for quarter ended March 31, 2011.
  • For the quarter ended March 31, 2012, the Company reported net income of $863,123 or $0.18 per diluted share as compared to net income of $444,137 or $0.10 per diluted share, for the quarter ended March 31, 2011.

Backlog as of March 31, 2012 was over $26M and bookings in the quarter ended March 31, 2012 were $12M.

David Robbins, Micronetics CEO stated “We are pleased with this fiscal year’s financial performance. We achieved improved operating margins and cash flow driven from subsystems business momentum and steady components revenue growth. We expanded our product portfolio to include high performance microwave subsystems. We believe that our positive engagements with many of our key customers point toward further growth in the niche markets in which we compete.”


Monday, June 11, 2012

GeoBargain GeoSpecial Takeovers

CHELMSFORD, Mass., June 10, 2012 (GLOBE NEWSWIRE) — Mercury Computer Systems, Inc. (Nasdaq:MRCY) (www.mc.com) contractors, today announced that it has signed a definitive agreement to acquire Micronetics, Inc. (Nasdaq:NOIZ) (www.micronetics.com), a leading designer and manufacturer of microwave and radio frequency (RF) subsystems and components for defense and commercial customers.

Pursuant to the terms of the agreement, Mercury will acquire Micronetics via merger for $14.80 per share. This represents a fully diluted equity value of approximately $71.7 million and an enterprise value of approximately $75.4 million, including $3.7 million of net debt as of March 31, 2012. The acquisition will be funded with available cash and is expected to be immediately accretive to EBITDA. Subject to finalization of purchase accounting, the transaction is also anticipated to be accretive on a GAAP basis within 12 months of the closing date.

The acquisition is subject to customary closing conditions, including approval pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if necessary, and the approval of Micronetics’ shareholders. The boards of directors of both Mercury and Micronetics have unanimously approved the transaction and the Micronetics board has recommended that Micronetics’ shareholders vote in favor of the transaction. The transaction is currently expected to close within Mercury’s fiscal 2013 first quarter ending September 30, 2012.

“We are pleased to have reached this agreement with Micronetics and are excited about the prospects this combination will provide for our customers, employees, and shareholders,” said Mark Aslett, President & CEO of Mercury. “The proposed acquisition is well-aligned with our stated acquisition strategy of growing our capabilities, services and offerings along the sensor processing chain. Micronetics’ unique microwave and RF capabilities will enhance our integrated digital and RF subsystem solutions for existing and next generation defense and intelligence programs. This type of integrated solution is unique in the marketplace and is in high demand by our defense prime customers.”

Based in Hudson, NH, Micronetics designs and manufactures high performance microwave and RF subsystems and components used in a variety of defense and commercial applications, including electronic warfare, radar, electronic countermeasures, satellite communications and commercial wireless products. For its fiscal year ended March 31, 2012, Micronetics reported revenues of $46.0 million, a 30% increase from the previous fiscal year, with net income of $3.4 million which was more than double earnings from the previous fiscal year. Approximately 78% of Micronetics’ revenues are defense-related. Micronetics had 208 employees as of March 31, 2012, all based in the U.S., including manufacturing locations in Hudson, NH, West Caldwell and Ewing, NJ, and Manteca, CA.


Monday, June 18, 2012

GeoSpecial Notes

On  10/28/2011 we added NOIZ to the GeoSpecial list @ $6.80

initial-code-noiz-geospecial

Catalyst: Break out second quarter 2011  results and culmination of past restructuring efforts.

We are now removing NOIZ from the GeoSpeicial List @ $14.80
Current road block: Being acquired by Mercury Computer Systems for $14.80 per share.

  • Peak performance: Reached a high of  $14.75 on 06/11/2012 for a maximum potential return of 117%
  • Current Price: $14.75

About the Author:

GeoInvesting is an investment research boutique in Skippack, Pennsylvania The GeoTeam's focus is on providing high quality stock market research tools and in-depth due diligence on U.S. small and micro-cap equities and on Chinese companies trading in China and the U.S. We research long and short ideas, and are the leading research boutique charged with helping investors navigate the treacherous China equity universe with a paramount goal toand protect portfolios from frauds. Numerous notable media outlets have credited GEO We have been credited with exposing numerous fraudulent companies in China. We have built a reputation in the US small and micro-cap space as champions of transparency. On the long side, we have also developed a , with a knack for picking stocks that have the propensity to get acquired at attractive premiums to their current prices will be acquired. Our team is currently comprised of 13 analysts and traders, and 7 on-the-ground researchers in Mainland China.

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