Pro-Dex Should Have Another Good Year

Pro-Dex (PDEX) appreciated 93% in 2016 and I think they’ll have another good year in 2017 (though not as good as 2016). In February 2016, Nate Tobik published a PDEX write-up of mine in his Oddball Stocks Newsletter. While the stock has advanced faster than expected, the thesis hasn’t really changed so I’ve copied the entire write-up below. There are a few notable updates from the past ten months:

  1. Their new #1 customer (referred to as project #1 in my write-up) signed a $24 million purchase order to be split between 2017 and 2018. Quite significant for a company that did $13.4 million in sales in 2015. This will be the catalyst for quarterly sales to ramp from the current run-rate of ~$5.3M up to $7M+ in 3Q17 (which ends March 31, 2017).
  2. Their acquisitions haven’t gone as smooth as they hoped so they stopped M&A for the time being. With that being said, each segment is trending in the right direction. In the most recent quarter, the three small segments (ESD, Fineline Molds, OMS) made money for the first time. These had previously been dragging company results down. Margins in the core Pro-Dex business have also been trending up as they continue to work through some manufacturing inefficiencies discussed below.
  3. Their production facility is only at 40-50% capacity so there’s a long runway for growth before major capex expansion is needed.
  4. There are a couple potential new projects in various stages. As you can see below in my write-up, management is pretty tight-lipped on how large the projects they’re working on could be. This means estimating future revenue requires a lot of educated guessing. Suffice to say, there should be one or two new product launches in 2017 and I expect them each to be worth a couple million per year in revenue.
  5. They’ve continued to repurchase shares.

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Xpel Technologies Part 2: The Lawsuit

Last week I gave an overview of Xpel Technologies (DAP.U, $1.10). If you missed it, I recommend starting there before reading on. This post reviews the patent infringement lawsuit filed on December 30th by 3M (who owns one of Xpel’s competitors). Before starting, I want to emphasize that I am not an expert in patent law, and while I have talked to professionals who do specialize in this area, I have almost certainly misinterpreted at least some part of what they’ve told me. This stuff isn’t simple.
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What Is Sitestar Worth? Part 2

In February I wrote a post detailing the situation at Sitestar (SYTE). If you didn’t read it, Sitestar is a micro-cap ($4M market cap) that was taken over by a couple of activist investors this past December. Most of Sitestar’s value comes from the 42 properties they own around the Roanoke, Virginia area, but they also have a legacy dial-up ISP business and they own the domain In the last post, I valued the company on a net asset value (NAV) basis somewhere in the range of 7 cents to 9.2 cents (current share price is 5.5 cents). Steven Kiel and Jeff Moore (the two activist investors) haven’t announced their plans for the company yet, but I think some kind of liquidation is one of the more likely outcomes. If a liquidation does happen, a discounted cash flow (DCF) is probably the best way to value the company.
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My Thoughts on David Winters’ Letter to CTO’s Board

David Winters, CEO of Wintergreen Advisers, has now written two letters in the past six weeks to Consolidated-Tomoka’s board of directors. The first letter was relatively tame and requested a shareholder vote at the 2016 annual meeting to put the company up for sale. Winters feels the market is not accurately valuing CTO (spoiler alert: I agree) and some combination of a sale and/or liquidation would maximize shareholder value. Winters’ second letter to the board made some serious claims: “we believe that CTO management, led by John Albright, is actively trying to deceive shareholders with filings, investor presentations and disclosures that obfuscate, confuse and hide what is really going on at CTO.” Not surprisingly, the stock dropped around 10% that day and has since recovered about half that. I want to go through that second letter point by point and give my opinions on the issues it brings to light.
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A Unique Win-Win Scenario for Investors

My original write-up on Consolidated-Tomoka (CTO) was titled “No Downside, Unknown Upside.” The situation has improved dramatically since then, we have a better sense of what NAV may be (that unknown upside is becoming more known), and yet the stock is only up 5.3% since my first post (now trading at $56.08). I have been adding to my position as of late. If you’re not familiar with the CTO story, I recommend reading my initial write-up prior to the below update.
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