Our pipeline of potential high-return, high quality microcap ideas is gaining momentum.
The market is undergoing a shift from investors favoring speculative “story stocks” to craving a value-driven approach, bolstered by the Federal Reserve’s assertive interest rate policy. This is leading to a risk-off investing environment.
We’re incredibly excited about 2 stocks in our pipeline that we’ve been following for a decade, both about to go through a new growth phase which should materially expand their valuation multiples, putting them in a position to attain multi-bagger status.
They both showcase the importance of investing in companies that are perfect for the current market environment because they have characteristics that embody high quality companies, increasing the probability of success.
These include:
- Microcap with Big Cap Caché.
- Prioritizing Strong Financials.
- Consistent Earnings.
- New Growth Strategies that are Inflecting.
- Industry-leading Positioning.
We believe these stocks offer the potential to deliver substantial compounding returns over the long term.
This first company’s story (which we will be talking about today) is an exciting one in that it just purchased another company with an energy drink asset that investors are probably not aware came with the purchase.
For company number 2, we’ll be leaving for another day, very soon. However, we think there is an upside of 7x, partially based on investor unawareness of information disconnects between analyst estimates and the growth targets that the company laid out in a presentation, and that we believe they will easily meet.
This is one of the most exciting ideas we’ve found in a long time, and our familiarity with the company’s past helps to give us the confidence in saying so.
The Pitch
This company operates in the healthy living industry. In recent years, the CEO orchestrated a successful corporate turnaround. This transformation is characterized by a stronger balance sheet, expanded retail distribution channels, a well-thought-out online presence, and a successful acquisition strategy.
We recently added this company to our latest Buy On Pullback Model Portfolio, a portfolio aimed at swiftly capitalizing on mispriced opportunities in the market, identifying timely stocks experiencing negative or muted reactions to positive news or downside overreactions to negative news that we see as temporary.
Key highlights
- A large cash reserve.
- Growing Sales and Earnings per Share at over 30%.
- Shares trading at too low Price-to-Earnings (P/E) ratio for a company experiencing high growth rates.
- An activist CEO with an expertise in turnarounds and successfully integrating acquisitions.
What piqued our interest even further is the company’s recent strategic acquisition of a distressed firm, quietly positioning the company to enter the energy drink market.
This aligns with our earlier decision to include a pure play beverage company we pitched to you on August 11, 2023.
Now, we have 2 new companies through which to play a hot industry, as peers Celsius Holdings, Inc. (NASDAQ:CELH) and Monster Beverage Corporation (NASDAQ:MNST), behemoths in the same space, continue to attain new highs at premium valuations.
Valuation
In our original BOP announcement we thought shares could increase 88.18% from the price at the time of our publication. Even though the price has already increased 18.5%, we will have to materially revise our price target based on the acquisition, especially because:
- Beverage stocks tend to carry premium valuations.
- They will have the ability to push a new young beverage line into an established distribution channel.
Given that CELH and MNST are profitable energy drink companies selling at price to sales (P/S) ratios of around 10x, the opportunity for today’s subject company to appreciate markedly from current prices is appealing based on its P/S of around 2x.
Interestingly, using MNST’s P/E ratio as a comp, the stock would triple.
In other words, It could get “silly” (in a very good way), but we will still need to interview management, something we plan on setting up next week.
If you are already a premium member, you can learn more about this stock and three others that have been added to our BOP #11 here.
About GeoInvesting
Geoinvesting is a research platform founded in 2007 to publish premium research on microcap stocks that meet a certain set of criteria that we have proven leads to superior returns. Empirical evidence proves that investing in microcap stocks beats the returns of larger cap stocks by 8.24% per year. Even Warren Buffett and Peter Lynch have said that if they were to invest in one type of stock, it would be microcaps. We provide our subscribers with an even bigger edge by combining the microcap investing edge with our own tested strategies to find the best stocks that are undervalued relative to their growth prospects or other positive catalysts. Our approach is based on qualitative and quantitative factors that finds stocks a point where they are going through significant changes that the market has yet to identify. This opportunity is only available in the Microcap world, an area ignored by institutions, Wall Street and the financial media.
Over the last 15 years, we have also built a expert Microcap investor network who contribute ideas to our subscriber base.
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