Seaboard Corp V.SEB

5 Beaten Down Names w Asymmetric Upside to Double in 2022...

[TallerCraig]

Now that tax loss selling season has officially come to a close, I thought I would just highlight 5 names that I think have been crushed on a stock price basis where the fundamentals have continued to improve throughout 2021 that create big upside scenarios for 2022.

This is where you gotta swing big!!!
 
We are talking about names that have been crushed 30,50 even 70%. On a year-to-date basis. The math on drawdowns has a compounding effect as in as these names decline 50% that presents 100% upside scenario from many of these deflated prices to just get back to prior year highs – in many cases where these businesses are in much better shape from a fundamental basis and have just seen excruciating painful multiple compression.
 
When you are entering these names at trough multiples it creates a lot better risk/reward and the asymmetry to the upside is greatly in your favour. To the point where things don’t have to go right, they just have to be less bad…
 
These may not be my favourite fundamental names into FY22 (Top 5 – ZOMD.V PHA.V ROI.V KIDZ.V SPG.TO) but I am LONG all 5 of these as the risk/reward is just too great to ignore and I think they all could double in 2022.
 
 
Lets get into it;
 

1) NameSilo Technologies Corporation – URL.CA (52 Week high – 0.31/share 50% off 52WH)
 
Coming off a disastrous year for the stock it has grown into the most hated name in many of the dimly lit chat rooms of MicroCap and my DMs are filled on a weekly basis reminding me of it. However, if you were to look at the business you could have been fooled. The core driver of the business is domain count and that has grown to over 4.55M domains under management which is 25%+ growth for FY21. Combined with the fact that Average Revenue Per Domain (ARPD) bottomed in Q2 with that key metric inflecting higher in Q3 finally combined with record bookings in Q3 with a FX tailwind into FY22 could be real interesting.
 
How does it Double? I think this one has a couple ways to win, with the balance sheet in a much better spot and the debt service continued to be reduced and dilution at much higher prices its is a great risk reward from here. With a takeout offer last year that didn’t close for the core business of 8-10x Gross Profit. So if we put that same value on FY22 numbers on a 20%+ grower you get to $50-60M enterprise value or 0.40-0.50/share at the midpoint. There’s our DOUBLE plus a little extra for the road. Also, interesting optionality into the beginning of the year with the IPA trial results that could spark sentiment to turn, that alone could push the stock back up to the mid 0.20s like it did on the last IPA run.
 
 
 
2) Martello Technologies Corporation – MTLO.V (52 Week high – 0.255/share 70% off 52WH)
 
This one has just been absolutely destroyed in 2021, even though ARR growth has now flipped positive on a YoY basis and the growth engine in their MSFT365 DEM cloud product is now primed for growth. With the MSFT365 business unit going to be representing >50% of Bookings and the Legacy business now <15% of Bookings the math gets a lot easier going forward. Did they miss-time/miss-guide the street on DEM growth before they had their Multi-tenant and Microsoft partnership lined up…? Absolutely, but that in no way changes the secular end market growth that this product addresses on a go forward basis now that the sales channel and the product is built out.   
 
How does it Double? Real simple here, they prove that that ARR is on the uptrend like we saw last Q. We will get a quick look at Fiscal Q3 early in the year and with it beaten down to the point where it is little over 1x FY22 ARR when peers are trading at 8-10x ARR not a lot has to go right. It has gotten so beaten down for it to double it just has to trade back to where it traded just 12 weeks ago and would still only be at 2x ARR. There’s our DOUBLE. A lot of money has been pumped into this thing at much higher prices and stock got blown out as people threw in the towel. Now that they finally have the right product in the marketplace just has to tick that ARR number higher when FX rate alone is good for 3-5% tailwind and it will start moving up quickly.  
 
 
 
3) Adcore Inc. – ADCO.TO (52 Week high – 3.34/share 80% off 52WH)
 
I think this one is the most straight forward. Another one of these AdTech names right at the inflection point of rolling out a Programmatic offering that will see growth inflect much higher into FY22. The space got way too hot but management did a great job at raising capital into the move in February at much higher levels. They raised capital close to 100% above current levels at 1.33/share. Once the offering price broke the stock collapsed into yearend. All the while the business continued to execute and the company has put up 4 consecutive Qs of 100%+ revenue growth.
 
How does it Double? Here a lot of it is balance sheet, it has gotten so cheap on an Enterprise to Sales basis with close to half the market cap now being in cash. I don’t think there will be any sellers in size till you get closer to that 1.30-1.40/share level. With Q4 being so seasonally strong for these AdTech models especially as this a pure play bet on E-Commerce growth and Q4 E-Commerce Sales were up 60%+ YoY on a macro level hard to not see how they don’t pre-release a monster Q4. There’s our DOUBLE.  If it gets going again it might not stop because even at 1.35/share it still would be trading <2x EV/Sales with 30% Revenue growth and profitable even assigning no incremental value to the EdTech platform they are building out. Look for analyst coverage early in the new year which would be a big help. Could get going parabolic on that as the eyeballs come to it in size.
 
 
 
4) Smart Employee Benefits – SEB.V (52 Week high – 0.35/share 50% off 52WH)
 
This one was a great mover early in the year and it gave it all back into yearend even as they continued to add to their backlog of Recurring Revenue from a contracted basis on out year revenue. They do a great job of laying out their TTM revenue, gross profit dollars & EBITDA in their MD&A. 2021 was a big transition year for them as they started to ramp up their benefits division the key growth driver of the business all the while they brought in the Co-Operators who now own a massive chunk of the business.  They keep talking about transformational deals. They hit any one of them from a trough multiple here could really fly, very good base business to build off of.
 
How does it Double? If you just look at conversion price alone of the money that the Co-Operators, put into the business it converts at 0.25/share or 50% alone up to the conversion price. If management is even close to right on the backlog which is already contracted out and able to pull any further growth out of the business it is not hard at all to see how the multiple to expand again off a trough multiple especially after People Corp got taken out for a hefty multiple. There’s our DOUBLE. With a lot of debt relative to equity if the business starts to get re-valued like it did in the summer the equity value has a lot of torque to the upside.
 
 
 
5) Glacier Media Inc. – GVC.TO  (52 Week high – 0.59/share 35% off 52WH)
 
I am going to keep this one short and sweet as there have been many people that have done an excellent job writing this one up on a fundamental basis especially when you look at it from a some of the parts basis. It is unequivocally very cheap with a ton of business unit optionality and the insider buying is sure nice to see.
 
How does it Double? What happens if the Legacy newspaper business doesn’t die…? The last time this traded to the 0.80-1.00/share lvl was in 2018 and the digital assets are clearly in a much better spot today than where they were three years ago. What changes sentiment, I think the big thing that changed is the terminal value of the newspaper division was greatly increased when Facebook announced they were going to start paying local news sources for content. In no way do I think that is priced into the stock. There’s our DOUBLE. There is a lot of Cashflow potential here with a lot of hidden gems within the business units. We could wake up one day to a PR that adds a lot of value to shareholders.
 


 
So, there it is. 5 names that have been crushed where I think all are in a much better spot today here than the were 12 months ago, which you wouldn’t know looking at the stocks.
 
The BULLISH thing, I think all 5 of those have set-ups to have an even better 2022 from a fundamental basis than 2021 at the same time you are paying trough multiples for all 5. When things are this cheap, they just have to be less bad. Especially when all 5 of these will be Cashflow Positive when I even think Martello could get there by the end of the year on a booking basis.   
 
 
5 Fliers for 2022 for you to take a swing at.
 
 
 
LONG