RE:RE:RE:Paradigm Upgrade All Analysts are going to be cautious on the stock. Why put yourself out there with a big price target when you don’t have too? Most Analysts prefer to gradually increase their share price over time, especially for “show me” stories like AJX. Also if you look at Paradigms forecast its extremely conservative, so they are leaving ample room to take up their forecast and consequently the target price.
As far as share price potential right now, it’s really all speculation about the company’s potential until numbers actually start flowing through OR management starts providing meaningful guidance. Having said that the BIG change that’s occurred last week is the growth trajectory is no longer a dream. Now there are several catalysts that “could” materialize with a realistic probability. The large $55mm order was the first evidence we’ve seen that the company may be finally turning around.
Catalysts to follow:
1. Additional business wins, similar to the $55mm contract. These could be with new and/or existing customers. Furthermore the business is “sticky” as management describes, once a customer has imbedded the AJX solution into their process. That means subsequent/future orders are highly likely. Note: On the last call the company cited new customer(s) in the CIS region just completed product testing, so perhaps they will start making orders in the second half of the year.
2. Sales to small farms <400 acres. Approximately 10 million farms, and at a minimum price of $6,000 for a precision solution, management is suggesting to us the Total Addressable Market (TAM) is $60bn. There are also no competitors at the moment, according to management. If the company is successful we could see a massive lift to revenue and growth (we’re talking potential of $100mm to $400mm annually in revenues, not a small number). On the other hand it’s a new market and it’s unclear at this point what kind of traction the company will get. Also new products targeting this market are forthcoming over the next 12 months. Stay tuned.
3. Rice-Planter and “other” new markets in APAC – The company has been testing their product for the past year. On the last call they cited one more spring season of tests on new products with the expectation of orders coming thereafter. The magnitude of this market potential is unknown at the moment, however these products are likely priced in the REBEL range given the size of equipment used. The Rice planter market is forecasted to grow, in terms of number of machines, 9%-10% annually so that’s quite a positive. Add on that precision adoption and this could be a large growing market, though adoption is likely to start with just the large fields first. Total dollar size is unknown but a guesstimate suggests could start at $10-$20mm annually and eventually scale to $100mm over a number of years.
4. IP Patents – There is a lawsuit with Raven. There was a $3mm IP deal reached last year with another manufacturer. All-in all a successful case and/or settlement with Raven could result in the company going after more fish. I’m totally guessing, but based on similar types of cases usually there is an upfront cash settlement in lawsuits for past damages + an ongoing annuity that usually translates to 3% to 5% of sales relating to the patented item. So perhaps AJX has potential to eventually earn a $10mm+ annual royalty from IP (again, total guess). The great piece about royalties is no costs are associated with them once they are in place, hence all that earnings goes straight to the bottom line
5. Ag market recovery – Even though soft commodities are still priced quite low in the US, farmers appear to be adjusting to the new world order and are looking at ways to reduce input costs. Precision agriculture is a great way to do it. Also the average age of equipment has increased a fair amount from 5 years ago when the ag “boom times” were occurring, so a replacement cycle seems imminent. The companies OEM strategy positions them well to benefit.
6. Company sale – Not likely anytime soon, certainly not if management believes there is significant upside to the business. But longer term I believe this is the monetization strategy. It’s obvious that management hates being a public company.
So what does all this mean for the share price? I’d argue a gradual march to $1.20 - $1.50 is totally achievable over the next few months given the potential catalysts. However if earnings don’t reflect the potential then the shares will just waffle around current levels +/- 25%. If some of the catalysts above materialize we are heading to $2.00, and if the company achieves a fair amount of its potential we’ll be approaching anywhere from $5.00 to $10.00 type of range eventually with it all depending on the company delivering results. I realize this is quite a wide range of potential share price but that’s the situation we are in now.