GEO Investing

homerunIt’s baseball season. Grand slams don’t come that often, and neither do investments that we think have the potential to return to us 4x our
investment… But they do come around from time to time.

Every team has hope, except the San Diego Padres.  A 5’ 5” shortstop was leading the Yankees in RBIs.  And the Cubs are the defending World Champions, after a 108-year slumber.  There is the excitement of the young season.  But one thing that makes us excited at GeoInvesting? Opportunity!  And we think we found a great one.

In baseball, there are only a handful of pitchers that can throw 100 mph for multiple innings, and that is why “The Cuban Missile” Aroldis Chapman makes $15mm a year as a closer and Noah Syndergaard will soon make twice that because it is rare, and people will pay a premium for it.  And once the market is set by one pitcher (say Clayton Kershaw, future Hall of Famer), then the copies that are not quite as good get overpaid because of fear and the shortage in the market.

Premiums in the Stock Market

In the world of stocks, we now see that kind of opportunity for over-payment in one sector of the market.

Recently, there have been a few companies bought out in this space for several times revenue, with the multiple paid increasing over the past year.  As the best players are snapped up, the next tier of player (whether company or baseball player) sees a swelling of their perceived value in the market due to “the shortage mentality.”  This is where we smell opportunity, and it smells better than fresh cut grass on the ball field.

One company we have been analyzing fits the profile of “3rd best on market”, a great position to be in if you like making money as much as we do.  This technology security protection company is part way through executing a multi-year growth plan to restore profitability, and as the better players in its space have already been snapped up at increasing multiples, there could be upward pressure for the value of this company.  It also has a few flaws that an acquirer can focus on correcting to generate some quick return on investment internally.  In other words, this company is like the pitcher with the 100mph fastball but has some control issues that a good pitching coach can work out.

Money and Value

Potential buyers for this organization awash with money, with billions of dollars at their disposal.  And just like the Cubs winning is good for baseball overall, or the World Baseball Classic this spring further growing the game internationally, the combination of Trump’s pro-business approach and some demographic pressures in the US makes this company more and more attractive and valuable as an acquisition target.

As we said, there are some mechanics issues that need to be worked out.  The company is not perfect, but it is the relatively easy to fix issues and its fairly scalable revenues make it highly attractive to the right buyers.  The company is in the final  innings of its restructuring plan.  So, we think it has good upside and limited downside, given its price.  If need be, someone with a 100mph fastball can always be put in the bullpen as the closer and still return value to the team.  That is exactly how we view the situation with this company — a home run or maybe a grand slam.

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