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This week’s Microcap Information Arbitrage Weekly Wrap-Up is ready — spotlighting key moves, missed signals, and overlooked opportunities in our 1,500+ coverage universe built since 2009.
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Summary Of What’s In This Weekly Wrap-Up
If you’re a microcap investor, you understand the edge and first-mover advantage you can get from exploiting negative stereotypes. One of my favorite Geoinvesting model portfolios is the Run to One Model Portfolio (R21). The common narrative is that penny stocks are too risky and complete trash. However, Xpel, Inc. (NASDAQ:XPEL) used to trade around $0.20 in 2012 and reached $100 by 2021. Koru Medical Systems, Inc. (NASDAQ:KRMD) began its multi-bagger journey as a penny stock, climbing from $0.40 in 2016 to $12 in 2020. Both of these stocks were added to our R21 portfolio in January 2013 and October 2016, respectively. Both companies also generate substantial revenue.
That’s why I was excited that we hosted a skull session event on Thursday with Luminar Media Group, Inc. (OOTC:LRGR). The company trades around $0.40 and has put together six consecutive quarters of revenue growth and profitability. LRGR operates in revenue-based financing and reported Q3 sales of $2.2 million.
Sure, penny stocks can be a little risky, but the potential upside can be significant if you can find a few before some of the issues that put the company in pennyland are about to abate or improve.
LRGR does not have the cleanest capital structure, but they are actively working to improve it. In fact, the company has taken steps to eliminate dilution and is preparing to uplist its stock. We are now assessing whether to add LRGR to our Run to One model portfolio as we continue to gain a better understanding of the risks involved in the company’s business.
The business transformation theme didn’t stop with LRGR for us this week. In some cases, the stock prices of these companies aren’t cooperating with what we see as value-building developments, but that disconnect is something we’ve grown accustomed to navigating. We’ll continue to take advantage of where we see it.
An example is Phonex Holdings, Inc. (OOTC:PXHI), which is transitioning toward a SaaS model and is about to roll out its new warehouse supply chain software platform. Despite this, the company has received little attention, even after paying a special dividend that yielded 43%.
On the flip side, some companies, like Altigen Communications, Inc. (OTCQB:ATGN), are also receiving little recognition, but for the right reasons. Even though ATGN has finally achieved profitability, the long-promised multi-year sustainable revenue growth has yet to materialize. ATGN shows why investing can be hard. It seems that they have been in the bottom of the ninth forever. The good news is that maintaining profitability should help put a measurable bottom in the stock as we wait to see the company starts delivering on past goals. The company is so hated right now that it’s kind of intriguing down here.
This week highlights:
- Phonex Holdings, Inc. (OOTC:PXHI) released Q3 numbers and outlined progress tied to its platform transition and upcoming warehouse software product.
- Luminar Media Group, Inc. (OOTC:LRGR) discussed its revenue-based financing model in our most recent fireside chat with President Yoel Damas and Head of Finance Juan Sese. The full replay is now available here. Note that we still have to also do background checks on management, a crucial step when you’re investing in penny stocks.
- General Enterprise Ventures, In (NYSE:CITR) announced a new commercial partnership tied to Class A fire-rated lumber production.
- Bird Construction Inc. (OOTC:BIRDF) (TSX:BDT) reported new project and service awards totaling roughly $1.2 billion.
- Altigen Communications, Inc. (OTCQB:ATGN) posted another profitable quarter and commented on its multi-year growth timeline, as it continues to sit in the “penalty box.”
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Earnings and Research Updates
After selling off a business unit
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