Behold, a new Stockhouse series!
The concept: In my travels, I often spot interesting investing targets and quietly put a little cashola here and there. Usually, I keep those buys to myself, but recently I started getting a lot of email, tweets, texts and the like asking what I liked in this crappy, crappy market, and so I figured maybe it’s time to share the territory my meager funds are charting.
The three companies we’re opening with here are either Stockhouse marketing clients, or have been, or will be sometime soon maybe, so let’s get the sticky conflicts of interest out of the way early. Feel free to completely ignore everything I’m about to say as being influenced by my desire to make money when these undervalued companies take flight. But know that A) I’m not buying before you have a chance to, and B) I’m talking about them not because I’ve been paid to, but because the market is dumb and has misjudged these companies to this point.
Let’s kick it off with the dumbest deal I was associated with in the last six months:
Lifestyle Delivery Systems(CSE:LDS, Forum), owners of the Cannastrips IP.
THE BACKSTORY: A few months back, I touted this play as being potentially the biggest of the year. Brokers had told me they had a $6m book for the $500k raise that was going alongside the company listing on the CSE, and promoters were fighting off phone calls from people who wanted in, right in front of me. Every conversation I had mentioned Cannastrips.
And the tech was solid.
Now, maybe there was actually $6m worth of heavy hitters wanting in at the $0.50 opening price, with warrants and reacharounds and bragging rights included. But probably there wasn’t. Either that or the same five guys were on the books of every broker and promoter attached to the deal and being counted five times because when the stock was finally trading, there was no support for it at all. None.
Within a week it was clear that the promises were bunk, that anyone who missed out on the PP was going to stand back and wait for the dust to settle, and that early holders of free-trading stock were cashing out.
There were other factors in play; The new CEO had promised he was going to move quickly on news, but it took an age to get the CEO transition sorted and, apparently, the former CEO wasn’t about to sign any deals while that was happening. The board wanted to approve of every transaction, further holding things up. And marketing deals discussed before the stock debuted (including one with Stockhouse) were abandoned in favour of keeping cash burn down, which is nice on the financials but doesn’t help a stock being beaten down on a daily basis.
As the stock plummeted to $0.20, then $0.15, then $0.10, insiders failed to support it and cheap warrants, piled up from earlier times, saw large block sales coming in when the company needed the opposite.
And here we are now, with the stock touching as little as $0.08 in the last few days, an *84%* drop from the listing launch.
That said? I’m buying, and here’s why: The guys who usually make out like bandits on deals like this have been creamed in this instance. The wealthy got wiped out. Now comes the chance for the retail guys, who don’t get access to private placement deals and warrants and company-subsidized lapdances, to snap up the stock at a massive discount.
Someone out there with a yacht, a sports car, and several ex-wives forked out $0.50 for a stock that you get today for $0.10, just four months later, and with the company finally getting deal flow in place right at the best time for new investors.
From what I hear from third parties involved in discussions with the company (sup, Gary), the licensing push is hitting its stride – a few months later than promised, granted, but happening nonetheless.
The CEO has long said he won’t be doing any more financing, and those overhanging warrants will aid in that endeavour (even if they’ll also suppress the share price for a bit). I’m also led to believe there have been delays in getting an integral machine out from China that has kept production limited so, frankly, any monthly numbers that emerge in the weeks ahead will probably be smaller than you’d like.
But, for me, those numbers being posted will be indicative of the company finally turning the engine over, and will mark the bottom of what you’re going to get this stock at as future numbers ramp up.
I’m buying stock Wednesday morning, and I’ll chronicle that adventure, be it a positive or negative, on a regular basis with the full disclosure that the company has engaged me as a consultant, despite my promise that I would have to publicly talk about their shortcomings.
Take that as another positive indicator that they’re looking to clean house and march forward.
Let’s move now to
Acuity Ads (TSXV:AT, Forum).
THE BACKSTORY: Acuity Ads is engaged in one of the most vicious sectors around; the online advertising world. When your competitors are owned by Google and Microsoft and Yahoo and Fat Tech IPO magnets 1 through 97, marking your own section of that territory usually requires ridiculous marketing budgets and a whole truckload of prayer.
But Acuity has forged another way in. They’ve developed tech that brings results that Google Ads can’t match. In fact, they’re the opposite of Google Ads, which bring pennies on the dollar to publishers, crappy results to advertisers, and a headshaking experience to users who really don’t have any interest in a beauty product Ellen Degeneres may or may not use.
The Acuity system uses something called programmatic advertising, which basically rolls out like this: You visit a website, for example CNN.com, and while that page loads Acuity’s tech does some crunching. It goes through your browser history to figure out what you’re into, what you’re looking for, what you’re searching for, what demographic you are, where you are, how old you are, and maybe what you had for lunch. Then it goes to the advertisers and says, “Sup bro, we’ve got this guy visiting CNN and he’s totally into investing. Who wants his eyeballs all up in their bidness?”
The Acuity system then ‘auctions’ that visitor off to the highest bidder.
The advertiser is happy because the user is more likely to give a crap about their ad. The publisher is happy because they’re getting more money for their user than they would if they just took the pennies on the dollar Google Ad Sense offers. And the user isn’t unhappy, because he’s seeing ads that may actually be something he cares about.
Pollen season outside? Acuity’s system picks up on that and delivers ads for allergy medications. Raining cats and dogs? Acuity digs, and shows you ads for trips to Mexico.
In 2013, when Acuity had $10m in revenues, it received a buyout offer of some $70m, which management rejected. In 2014, revs were up 40% over that figure. In 2015, they’re moving up even more so.
But the market cap? Just $22.1m.
DUDE! Not even a third of the buyout offer, with the company having upgraded its system (it now offers full self-serve and reseller services), ramped up sales, and now they’re working on delivering individualized ads for TELEVISION. That’s right, no more Flo from Progressive, unless you’re actually looking for car insurance and mind-numbing attempts at humour!
I bought some earlier in the week, and I’m buying more first thing Wednesday morning, and if the company continues to put out strong news, I’ll buy more. I figure Acuity is undervalued by a factor of about 50%, and the market will catch up to it soon.
Last company for this week:
Patient Home Monitoring (TSXV:PHM, Forum).
Wow, what a mess this thing became.
PHM was rocketing. It was destroying all comers. It was acquiring companies and market share and delivering results and was the darling of the Venture exchange.
$0.39 in August of 2014, running to $2.01 in April of this year, and then it started to list a little. The stock flattened out at $1.50 through some management changes, which is fine in a down market, but in the last month it came unhinged.
Why? Former CEO … check that, CROSS TRADED a bunch of his stock into a health fund he was starting up. He also cashed out a bit, as a former CEO will sometimes do, but the massive explosion in trading volume shook the exchange and was hard for bagholders to take as it drew in short sellers and bearish commentators (including the Globe and Mail and Stockhouse), and triggered stop losses which just kicked the legs out from under the stock on an ongoing basis.
Right now, it’s panic stations. Another 12% came off it Tuesday with big volume as people fled for the exits and the stock landed at $0.81, but personally I’m seeing a glowing bright green opportunity.
Look, PHM makes money. It’s not a shell full of pump juice, not a debt-laden Titanic, not a promise that will never come true, and not an overvalued bubble. In fact, it was only a few months ago that the company began the process to
move up to the TSX big board. When it raised money in May, it raised $67.3 million, having initially needed just $36 million, and all of that was acquisition fuel.
That sort of money doesn’t come from a whim, it comes from huge corporations looking your board in the eye, smashing your business plan with sledgehammers, and making sure everything still works afterward before they cut a cheque.
PHM is legit. In its most recent financials, it had
record revenue and EBITDA, and announced a
share buyback plan, a deal that will help support the share price and come far cheaper now than it would have when announced.
I’m buying in Wednesday morning because, for mine, even if it drops another 10-15%, the current share price is dirt cheap and comes from over-emotional sellers, deliberate and sustained bear raids, and won’t make any sense when the next financials land.
James West at Midas Letter did an
audio interview with PHM's CEO yesterday that I think lays this out pretty well.
Let’s be clear: PHM is a Stockhouse marketing client. But they didn’t pay for this coverage, and we’ve
not been shy about calling it when we see shortcomings.
Yes, PHM got drunk and passed out. But the hangover is temporary. I’m in, and will chronicle what that looks like in the months ahead.
Peace, in.
--Chris Parry
https://www.twitter.com/chrisparry
Full disclosure: Currently holding at the time of writing: Acuity Ads, Invictus MD Strategies, MGX Minerals, Moseda Technologies, Naturally Splendid, and Strike Diamond.