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A PodClip recorded by Maj on February 11, 2022 addresses 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.
He is of the staunch belief that those who are ready for the rotation into microcaps that are of higher quality will be rewarded due to the stock prices that have fallen in sympathy with a weak market. Second, he talks about Konatel Inc (OTC:KTEL), a much asked about stock that has gone through a bit of a reset itself.
You can listen to the entire PodClip below, and we’ve also transcribed the section on KTEL, where he conveys his current thoughts on the company.
Really quick on KonaTel. KTEL is a cloud communication company in our model portfolios, you know, it’s had a great run from 30, 40, 50 cents, since the beginning of last year,maybe March of the year, in 2021.
I think it got as high as $1.80 – $1.90 recently, and now it’s pulled back all the way to like the low $1’s. And I’m not going to get into the full story here. But you know, part of the enthusiasm on this story was on the part of the business that provides telecommunication services to low-income households (broadband, mobile phone service, and data).
So part of the big, bullish theme on this was they get subsidized by the government to do that through various programs. And we really got excited about their approval to be able to be one of the few companies to provide these services in California. Life Line was the original name of the program. But [California] is the largest hotbed for these subsidized services.
The market had expected, as we did this, to have California start contributing to the company’s bottom and top line, in maybe the fourth quarter of 2021, first quarter of ‘22. You can track some of this Life Line data [online] and the new program, I think called the EBB Program.
And it appears that California is still not online yet and that the company is still not booking any revenue and are not offering services in California [but we believe they can market the service].
Some of the members from GeoInvesting have done some great research and found out that the delays are not caused by KonaTel. It’s basically some administrative stuff on California’s side for getting that program rolled out – the technology to track the Life Line numbers, EBB numbers, and just have that database ready.
So, I think it’s possible that investors are catching wind of that, and maybe short-term investors are selling based on that. But, that’s only an assumption.
Of course, the market weakness plays into it too, that we’ve had recently. But look, the key point here is – I’m going to go back to that one thing, we call the Big Hairy Audacious Fact – the one thing we’ve got to remember, is that one time when KonaTel was providing services in California as a reseller, not as a primary service provider, they stopped doing it because margins were low when as a reseller. But they were lighting up 10,000 lines per month at one point – that’s what you’ve got to remember.
To put that in perspective, they have probably about 8, 9, 10,000 lines now. So you have to remember that hopefully this California [delay] is a short-term thing. And once they get [the technology] rectified, I think we’ll see some more investors coming back into the stock again.
We’re also going to want to see how the numbers look on the financials in terms of how the income and revenue from these new Life Line, or EBB customers, flow to the bottom line. There might be some extra costs up front and we may not see new subscribers, maybe contributing to profits right away…maybe it takes two or three months.
So that could be another risk to the story in the short term too. But, as they continue to accumulate subscribers and start getting more recurring revenue from the installed base, that risk is mitigated because the installed base gets so big where it can more than mitigate any short term delays, with the short term revenue not covering these costs.
I’m still very bullish on the company. It’s one of my favorite high conviction companies at Geo. I hope that helps.
Remember, stop looking at the stock screen. Stop thinking that someone knows more than you when you see stocks going down. Trust your research, trust your conviction. We will be wrong sometimes we move on. Talk to you soon.
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