Armanino Foods (AMNF, $2.17) sells frozen pestos, sauces, stuffed pasta and cooked meat products. The current CEO, Edmond Pera, took over in February 2009. Since then, revenue has nearly doubled, share count has decreased 8%, and gross margins, operating margins and returns on capital have all expanded. All this fueled a stock price that has compounded at a rate of 31% per year since 2009. Not surprisingly, the small cap investment community took notice to these impressive results. Over the past few years, Armanino has been written up on Value Investor’s Club, otcadventures, multiple times on Seeking Alpha, and it has its own thread on Corner of Berkshire and Fairfax. Because these extensive write-ups already exist, I’m going to give a quick business and industry overview and then focus on why I like AMNF as an investment right now. This isn’t a lengthy write-up, but that’s because the thesis is pretty simple. Armanino is probably my favorite idea in terms of risk/reward that I’ve discovered this year.
Continue reading “Armanino Foods (AMNF)”
Category: Investment thesis
Noble Roman’s Short-Term Play
This is going to be a quick post on a short-term investment I made. It’s already partially played out (quicker than I expected), but I think there’s more to go. Hopefully some readers can make a quick buck here. Privet Fund acquired just under three million shares (14%) of Noble Roman’s late last year and wrote a letter to the board in November. Privet’s attempts to get active obviously didn’t go well because they started dumping their shares on March 31 and it appears they sold their final chunk last week. NROM is a small ($13 million market cap) illiquid stock so three million shares hitting the market affected the stock in a big way. The day before Privet started selling, NROM was at $0.88. When Privet sold the rest of their shares last week, the stock bottomed out at $0.47.
Continue reading “Noble Roman’s Short-Term Play”
Xpel Technologies Part 1: Company Overview
Xpel Technologies (DAP.U, $1.05) sells paint protection film that goes on the front of cars to protect them mainly from rock chips. Paint protection film is a clear and very thin polyurethane-based material that is virtually invisible once installed. From Q4 2011 to Q1 2015, they recorded an incredible 14 consecutive quarters of at least 50% revenue growth (almost all organic). Not surprisingly, Mr. Market thought very highly of this growth and Xpel’s stock was often priced around 40-50x earnings. Inevitably that growth slowed down the past few quarters (although it remains over 30%) and the stock took a beating as a result. To top it off, on December 30th 3M (who owns one of their competitors) filed a patent infringement case against Xpel and the stock dropped another 50% on New Year’s Eve alone. It’s traded in that ballpark since. There’s a lot to say about Xpel so I’m breaking it up into two posts. This post covers all the main stuff (business overview, competition, management, etc) and then part two will review the lawsuit.
Continue reading “Xpel Technologies Part 1: Company Overview”
Zoom Is Zooming Into Massive Growth
Zoom Telephonics (ZMTP, $1.73) is a microcap that is about to experience explosive growth. In 2015 they did $10.8 million in revenue and their 2016 goal is to do between $50 and $100 million. This ramp up is due to a large contract win they announced last April with Motorola. The stock is up around 800% since then! But if management hits its projections, Zoom’s stock could have a lot more gas left in the tank.
Business overview
Not counting the Motorola deal, Zoom mostly sells low-end modems and modem/router combinations (but not routers). They sell modems for cable Internet, DSL, and even 56k. Never would I think that in 2016 I’d be researching two companies that still deal in dial-up Internet. Maybe Sitestar and Zoom need to get together and see who’s legacy dial-up business is shittier.
Continue reading “Zoom Is Zooming Into Massive Growth”
What Is Sitestar Worth? Part 1
I’m betting Sitestar (SYTE, $0.0465) is a familiar name to those of you who follow the microcap space. For those who don’t recognize it, I’ll do a quick catch-up. Sitestar started getting attention in 2011 when Jeff Moore (aka Ragnar Is A Pirate) began writing about them and continued updating readers up until June 2014 when he started some activism. If what I write piques your interest, I highly recommend reading through his many posts for an educational and entertaining look at his past 4.5 years of involvement in this company.
Continue reading “What Is Sitestar Worth? Part 1”
GlobalSCAPE Inc and Why SaaS Kicks Ass
I’ve been looking at several SaaS (software-as-a-service) companies as of late. In laymen’s terms, SaaS is software that is hosted by the providing company and the customer pays a regular subscription fee to use it (as opposed to purchasing the software up front for a one-time fee and hosting the software themselves). If you were to write down a list of characteristics you seek in investments, I bet the typical SaaS company checks off most items on your list. GlobalSCAPE Inc (GSB, $4.10) is one such company that possesses the following:
- 95% gross margins
- Free cash flow margins around 15%
- Over 100% returns on capital
- Over 50% of revenue is recurring
- Good visibility into future revenue
- Little to no customer concentration (no one over 10% of revenues)
Napco Security Technologies (NSSC)
Napco Security Technologies (NSSC, $5.56) is one of the companies I met with at the MicroCap Conference two weeks ago. At a quick glance, Napco appears to be a typical manufacturer with no competitive advantage and low margins, but there may be more to the story. They manufacture security products such as alarms, door locks and surveillance systems that are sold through a distributor network with schools being the major end user. They occasionally get large one-off projects like the $1.7 million dollar sale to Pepperdine University as part of the school’s larger security overhaul. As school shootings have become more common, schools will continue to beef up security. Just in 2015 there have been 52 school shootings (though six were suicides) with three of these considered mass shootings (four or more people shot). This provides a decent tailwind for Napco’s products.
Continue reading “Napco Security Technologies (NSSC)”
Oriental Watch: Deep Value at its Finest
Oriental Watch is a luxury watch retailer that owns stores in China, Hong Kong, Macau and Taiwan. The company’s stock is currently selling for HK$1.05 and my estimate of liquidation value is around HK$2.50-$3.00. Any company selling for 35-40% of liquidation value is bound to have its fair share of problems and Oriental Watch is no different. They were profitable as recently as 2014 but there are significant headwinds facing the Asian luxury watch segment. Thankfully the management team has already been making moves to cut expenses and return to profitability.
One note: they are listed on the Hong Kong Stock Exchange (symbol: 0398) and on the American pink sheets (ORWHF). Unless otherwise stated, all numbers in this write-up will be in Hong Kong Dollars (HK$). The conversion is currently HK$1.00 to US$0.13.
Business overview
While the majority of their stores are in China (68 out of 87), these stores are smaller and less important to the story than the thirteen locations in Hong Kong. The company’s two operating segments are Hong Kong and then China, Taiwan and Macau combined as one. For simplicity I’m going to refer to this second segment as China since only six stores total exist in Taiwan and Macau and they are all through joint ventures. The thirteen Hong Kong stores make up around 70% of revenue and are still profitable as opposed to the China stores dragging down the results.
Continue reading “Oriental Watch: Deep Value at its Finest”
Macro Enterprises: Below Liquidation Value and Profitable
Macro Enterprises is profitable, selling for below liquidation value, still run by its founder who has significant stock ownership and there is an impending catalyst that could significantly increase revenue. Macro is based in Canada and its main listing is the TSX Venture Exchange under the symbol MCR (C$2.15); they’re also listed on the American pink sheets under MCESF ($1.60). Unless noted, all numbers in this write-up are in Canadian dollars.
Business overview
Macro builds and maintains pipelines for the oil and gas industry in Western Canada. Not surprisingly due to the oil collapse, very few (if any) new pipelines are being built today. Their revenue has declined from a high of C$212 million in 2013 to a projected C$130-140 million for full year 2015. Because no new pipelines are being constructed, almost all of their current revenue is maintenance and integrity work on existing pipelines under master service agreements (MSAs). The silver lining here is that maintenance work is required by law on active pipelines which means they’re able to maintain pricing power even during a downturn. As proof of this, towards yearend 2014 one of their MSAs came to an end and was extended for three years at similar terms. Management has stated they expect gross margins to remain fairly close to where they were in 2012/13 (~22% vs 26% at the peak). This has been proven true through the first several quarters of the downturn.
Continue reading “Macro Enterprises: Below Liquidation Value and Profitable”
Consolidated-Tomoka: No Downside, Unknown Upside
Consolidated-Tomoka (CTO, $53.25) is a diversified real estate company based in Daytona Beach, FL where most of its operations are. CTO owns quite a few different assets which I’ll get into below, but their two main assets are 10,500 acres of raw land in Daytona Beach and 43 income-producing properties (mostly single-tenant retail buildings and multi-tenant office buildings). Management’s stated goal is to sell off the 10,500 acres of land and use the proceeds to purchase more income-producing properties. It is extremely difficult as an outside investor (especially one who hasn’t been to Daytona in years) to accurately estimate what their land is worth, but even the most conservative assumptions put the value of the company above what the market is valuing it at today.
Continue reading “Consolidated-Tomoka: No Downside, Unknown Upside”
Travis Wiedower 