Tiny OTC Company trading at 2x FCF and growing sales 20% YoY
Research report on a company from my A-Z list
Hi,
And welcome to my new write-up. Generally I like growing quality businesses at cheap valuations. That is the main part of my portfolio. Companies like PharmX, Shelly, Haypp, Intellego, Connexion, Sofwave, that can scale and have numerous options to grow.
But then I am also attracted to stuff that is maybe not the high quality but it is just too cheap to ignore like Ignite, TSR and Sodi… And I think the company I highlight today is just too cheap.
During my time going through all OTC stocks, I have found tiny, profitable company in an industry I would normally passed on because of lack of differentiation and terrible economics. However, this small company actually benefits high competition and found interesting niche. Altough I am not convinced of strong moat, this little technology company grew sales in all but one year during the last decade and recently became profitable and now trades at 2x EV/FCF.
Summary of this investment
$ 1.9 million market cap
Revenue is growing 20% a year while shares are trading at 2x EV/FCF
Inflection in profits from negative EBIT margins last year to 14% in latest quarter
Amortisation hides a real economic profitability which soon will be seen
The company has significant NOLs, making tax shield larger than the whole market cap
Led by founders who own 25% of shares who are focused on keeping costs lean
The company is significantly reducing debt
No dilution in the last 4 years
Extremely underfollowed and written up for the first time
Higher risk because of debt and stronger competitor
Let me introduce you this company.