GEO Investing

I’m excited about a stock in our pipeline that we have been following since 2020.

This stock is listed in our Run2One Model Portfolio, a selection of stocks trading below $1.00 that we anticipate will surge beyond the $1.00 mark due to their current undervaluation and the potential for substantial revenue and net income growth.

The company helps its clients understand their customers’ habits via data collection services and on-site inspections by field agents. 

A recent acquisition has given the company the only one-stop-solution for the suite of services that potential customers currently have to piecemeal together from different service providers.

We think this acquisition is going to be the catalyst to take the stock over the dollar mark in the coming weeks. This would lead to an increase in the stock price of nearly 200%.

But even better, we found some information tucked away in the company’s filings that were not in the Q3 2023 press release, indicating that business conditions have improved (we call this Information Arbitrage).

They conveyed that the performance of the company’s Q3 2023 sales over the prior year marked a turning point in the challenging economic conditions many of their clients had been facing.

Last Wednesday, Nov 22, I hosted a Skull Session Management Briefing interview with the company’s CEO, the day after it reported surprisingly strong third quarter financial results.  

Why was this interview so important? Aside from understanding some of the dynamics of the recent acquisition, we wanted to understand if weak industry conditions had finally truly bottomed.

The stock had fallen 40.9% from March 2023 to November 2023, trading near its 3-year low. 

The dip is attributed to a temporary deceleration in customer orders. While its customers were still engaging with the company, many of them pulled back the pace of their order flow because of some uncertainty regarding the economy. 

While demand  was still somewhat strong, it wasn’t as strong as it was in the past as customers were taking a wait-and-see attitude on the direction of the economy. 

Well, our chat with the CEO of the company confirmed the statements he made in the filing that industry conditions have bottomed, and that the company is back in the high growth mode they were about to enter before COVID-19 severely hurt the business because many of its clients are in the retail and hospitality business. But, now it looks like it’s game on!

I find it ridiculous that this profitable company with high recurring revenue and a low customer abandonment rate is trading at a price to sale of around 0.5x. To put this in perspective, from our experience, companies with these types of characteristics would typically minimally sell at a price to sales multiple of between 2x to 4x.

Now that we have information that the industry trends are turning positive for the company, and that the acquisition has totally transformed them, the case is even stronger that the shares should gravitate towards this valuation range. 

Including the revenues from the recent acquisition, this would translate into a price performance target range of 362% to 824%.

KEY FACTS

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Themes

Run to One; Severely Undervalued; New Growth Phase

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Catalyst(s)

Transformative Acquisition; Information Arbitrage; Industry Conditions Have Materially Improved

Industry

Data Analytics; Software as a Service (SaaS)

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Price & Revenue

<$1 per share, >$30 million

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