Cheap Stocks, 4//3/2015 Update

We were up 5.1% last week and are now up 2.3% for the year. Gains in CTIG (41%), DAEG (23%) and PRSS (13%) led the way. The DOW ended the week up .3% and the NASDAQ was down .1%. For the year the DOW is down .3% and NASDAQ is up 3.2%.

CTIG and SIGM earnings last week.

Some of our stocks are just stupid cheap—compared to their net cash on hand divided by their stock price.

Check this list:

UNTD 33%
CCUR 37%
SIGM 35%
MRVC 31%
SYNC 36%
CTIG 32%
PRSS 43%

AVID, ATEC, PRSS, SYNC, EXTR, and DXM  can still be bought.

Last week we went 10 stocks up, 4 down and 1 even. Since inception we are now 66 stocks up and 22 down for a 75% winning percentage (80% is our target win %).  Of our closed-out positions 60 have been winners and 13 have been losers for an 82% win percentage and a 35% average net gain per position.

The model portfolio assumes $10,000 invested in each stock (unless we double-up–then it is $20,000), less $10 commission each way (TD Ameritrade rate).

Avid Technology, Inc. (NASDAQ-AVID)-Recommended 1/20/2015)

Buy Price $14.00

Valuation $23.86 (Was $28.10)

Closed up $.82 at $15.55

AVID announced Q4 (12/31/2014) earnings on March 16, 2015. http://finance.yahoo.com/news/avid-announces-fourth-quarter-full-212308642.html

We thought they were just fine, but the market was initially disappointed as the stock fell as low as $12.02. But the stock rebounded and ended the week up 3%. Our valuation fell to $23.86, as seasonality and currency headwinds affected results. We are not worried as AVID is a technology leader and solid company.

UP 11% BUY

Alphatec Holdings, Inc. (NASDAQ-ATEC)-Recommended 9/2/2014)

Buy Price $1.56

Valuation $3.11 (Was $2.95, $3.00)

Closed up $.01 at $1.41

Q4 (12/31/2014) earnings were announced on February 26, 2015.

Revenues were $53.6 million compared to $53.1 million last year. EBITDA was up 22% from $7.5 to $8.3 million. 2015 guidance is revenues of $215 to $222 million and adjusted EBITDA of $34 to $37 million compared to 2014 revenues of $207 million and adjusted EBITDA of $30.8 million.  Our valuation came in at $3.11 compared to the previous $2.95.

Down 10% BUY

CafePress, Inc.  Inc. (NASDAQ-PRSS)-Recommended 5/19/2014)

Buy Price $4.01 (Was $5.40 before adding $10,000 at $3.19 on 3/2/2015)

Valuation $11.17 (Was $11.17, $12.51, $11.27)

Closed up $.45 at $3.94

Boy, where do we start here. PRSS announced Q4 2014 earnings on February 25, 2015. Rather than focus on the actual results, because they include the results of the 2 divisions they are selling, we will focus on what we think the rest of 2015 looks like on a pro-forma basis (our best guess from the press release and conference call).

The sales of their two divisions will result in approximately $40 million of cash added to the $30 million or so at 12/31/2014. This will be just under $4 a share in net cash. The stock is trading below $4. The divisional sales will result in the loss of 35% of their revenues which were $230 million. So call it $150 million after the divestures. They had about $2.5 million of adjusted EBITDA in 2014 and from their conference call will lose some EBITDA as a result of the sales. So they may lose $1 million or so, on the EBITDA level in 2015. This does not concern us as that is nothing compared to $70 million in cash.

Looking at all this our valuation on a pro-forma basis comes in about $12.50 a share, and the company is much more focused on its’ core business, has its’ original management back that know how to run this business and are looking to build shareholder value.

Lloyd Miller filed a Form 13G on October 24, 2014 disclosing a 5.1% (887,000 shares) stake in PRSS..

Down 2% BUY

Extreme Networks, Inc.  Inc. (NASDAQ-UNTD)-Recommended 3/12/2014)

Buy Price $3.43 (was $3.95 before we added another $10,000)

Valuation $9.34, (Was $8.24, $9.68, $8.52)

Closed up $.16 at $3.24

EXTR announced Q2, 2015 (December 31, 2014) earnings on January 28, 2015. Revenues were $147.2 million, up from $146.5 million last year. They made $4.7 million versus a $14.1 million profit last year on a Non-GAAP basis. Gross margin held steady at over 50%. Our valuation was $9.34 up from $8.34 last quarter. Cash per share was $.20 (compared to negative $.17 last quarter). Guidance for next quarter is a tepid $130-$140 million in revenue and bottom line of between a loss of $3.1 million and a profit of $1.8 million which will result in a valuation of about $8.40 a share (all Non-GAAP numbers). Hopefully they can beat this.

Down 6%, BUY

United Online Inc. (NASDAQ-UNTD)-Recommended 3/12/2014)

Buy Price $10.28

Valuation $34.65 (Was $33.50 $35.84, $32.35, $27.86)

Closed up $1.00 at $16.67

UNTD announced Q4, 2014 (December 31, 2014) earnings after the close on February 18, 2015. Revenues were $54.4 million, down from $62.6 million last year, but up from $52.9 million last quarter.  They made $2.3 million before tax versus an $8 million loss before taxes last year. Gross margin held steady at 68%. Our valuation was $34.65 up from $33.50 last quarter. Cash per share was $5.53 (compared to $5.38 last quarter). Guidance for next quarter is $47.5-$50.5 million in revenue and bottom line of between a loss of $.8 million and a profit of $2.8 million.

OIBTDA (which they use instead of EBITDA) was $11.4 million compared to $12.6 million last year.

Up 64% HOLD

Synacor Inc. (NASDAQ-SYNC)-Recommended 12/17/2013)

Buy Price $2.56

Valuation $6.61 (Was $5.58, $5.21, $5.44, $6.67, $6.39)’

Closed down $.20 at $2.33

Q4 earnings were announced on February 25, 2015. Actually they were surprisingly good and our valuation jumped to $6.61 a share. Then, they gave 2015 guidance of revenues of $95-100 million and EBITDA of $1.5 to $3.5 million—this would knock our valuation back down to about $5.29 a share. The CEO said they were “excited” about this-we are not. Revenues were $30.9 million for the quarter, up 18% over the previous quarter and up 5% over last year. Net cash rose to $.84 a share.

Pre-tax profit for the quarter was about $1 million versus $500,000 last year. EBITDA was $4 million compared to $2.8 million last year. Again, the quarter results were doused by 2015 tepid guidance.

JEC and Ratio Capital have been quiet lately.

Down 9%. BUY

Dex Media Inc. (NASDAQ-DXM)-Recommended 5/10/2013)

Buy Price 6.46 ( Was $15.14 before adding $10,000 on 3/30/2015)

Valuation $31.00 (Was $31.00, $34.00, $37.98, $34.36, $31.50, $24.25)

Closed up $.20 at $4.31

DXM announced Q4 2014 (December 31, 2014) earnings on March 12th, 2015.  http://finance.yahoo.com/news/dex-media-announces-fourth-quarter-110000000.html Revenues were $433 million, up from $429 million last year and down from $454 million last quarter and adjusted EBITDA was $173 million up from $167 million last quarter and down from $210 million last year. Overall an OK quarter. Our valuation stayed at $31.

Comparing the actual 2014 results to their original merger projections in 2012, as expected, they missed their revenue and EBITDA targets by $324 million and $121 million respectively. But more importantly they exceeded their debt reduction target by $200 million. They paid down another $73 million in net debt in Q4. We still think this is a BUY, albeit a risky stock due to the high debt levels and declining print advertising business.

DEX announced a major restructuring  on December 11, 2014. They expect to incur

$70-$100 million of expenses to achieve $150 million of ongoing expense savings with $110 million of that coming in 2015. They expect to begin deleveraging their balance sheet (meaning Net Debt to adjusted EBITDA ratio) in 2016. No question that’s what they need to do.

Down 33% BUY

Daegis Inc. (NASDAQ-DAEG)-Recommended 11/30/2012)

Buy Price $1.09 (Was $1.20 before we doubled up)

Valuation $1.83 (Was $2.83, $2.85, $3.39, $3.25, $3.42, $4.64, $4.86, $4.00)

Closed up $.15 at $.81

Second quarter (10/31/2014) earnings announced on November 20th. Ouch!

Revenues were $5.7 million down from $7.9 million last year and down from $6.7 million last quarter. They lost $.06 on a GAAP basis compared to a $.05 loss last year.  On a Non-GAAP basis they lost $.04 a share versus a profit of $.02 last year. Our valuation plunged to $1.83 from $2.83 last quarter. Net debt declined a bit to $7.6 million from $8.7 million last quarter and declined from $11.3 million a year ago. It will be a longer wait to see some action here. Still trading at less than 50% of our valuation but they need to get this company moving in the right direction-soon, or sell it.

Norm Pessin filed a 13D on November 27, 2013 disclosing a 6.2% stake and upped it to 12.2% in December 2013.

Down 25%, HOLD

Bridgeline Digital Inc. (NASDAQ-BLIN)-Recommended 8/24/2012)

Buy Price $.79 ($ 1.17, $1.24 before 12/15/2014 and 2/14/2014 $10,000 adders)

Valuation $1.17 (Was $1.51, $1.75, $1.76, $1.83, $1.61, $2.19, $2.35, $2.56, $2.24)

Closed down $.03 at $.45

A five for 1 stock split coming, which was enough to offset the $1.8 million deal they signed last week

BLIN announced earnings on February 12, 2015 for Q4 2014. Not good. Revenues were down to $5 million from $6.5 million last year. They lost $2.1 million versus $.8 million last year. Looks like they were too occupied with their expense reductions in Q4.They did announce that they did not anticipate any more equity issuance in 2015, which is a good step. They reaffirmed their $800,000 a quarter expense reduction in 2015 also. All our hope is they can execute going forward on their record backlog going into 2015. Our valuation dropped to $1.17, still more than double the current trading price, but about 50% from where we started here. This is now a Hold—they need to show progress.

Down 43%, HOLD

Telecommunications Systems Inc. (NASDAQ-TSYS)-Recommended 6/14/2012)

Buy Price- $1.37

Valuation $6.55 (Was $6.88, $6.12, $5.99, $5.32, $6.81, $6.28, $4.89, $6.02, $6.72, $5.49)

Closed up $.06 at $3.75

Q4 earnings announced on, February 5, 2015.

Not bad. Revenues were $93.3 million up 19% compared to $78.6 million last year and they made $.06 a share on an “adjusted basis” compared to $.02 last year. If this were some high flying tech stock this would be over $4 a share based on the 19% revenue jump-but alas, it is not. Apparently they “missed’ analysts revenue estimate and little happened with the stock price. Our valuation slid a bit to $6.55, up from $5.32 last year but down $.33 from last quarter.

They also reached a settlement with Becker Drapkin in February. BD gets two Board seats in exchange for not buying more than 12% of TSYS stock prior to 12/31/2016.

Becker Drapkin filed a 13D on November 24, 2014 disclosing a 6.7% stake. They had the standard 13D language about their intentions to discuss various options with management. Good news that someone is paying attention to this undervalued company.

We will continue to hold TSYS despite our over 100% gain. Maybe this will turn into another MITL and be trading at $10+ in the next year. .

UP 174%, HOLD

MRV Communications (Pink Sheets-MRVC.pk)-Recommended 10//10/2011

Valuation $24.44 (Was $25.52, $24.58, $23.19, $25.50, $28.98, $24.01 $23.06, $27.15, $31.80, $34.60, $28.60, $41.20, $43.20 (after $9.50, $6.00 and $1.40 special dividends), $52.40, $55.80)

Buy Price October 7, 2011- $8.50 ($25.40 before special dividends)

Closed at $7.51 up $.21

MRVC announced Q4 2014 (December 31, 2014) earnings on March 10, 2015. http://finance.yahoo.com/news/mrv-reports-fourth-quarter-full-200500230.html Revenues were $43.4 million, up $200,000 from last quarter but down 14% from $50.7 million last year. They lost $2 million pre-tax versus a $.174 million loss last year. Net cash per share fell from last quarters $2.63 to $2.34 last quarter Our valuation was $24.44 down from $25.52 last quarter. They spent $3.2 million buying 307,000- shares in their share buyback program. Again, not sure this is the best use of their cash in that it just makes their loss per share bigger.

MRVC is trading at 32% of our valuation, but, we are moving this to a HOLD as sales growth has slowed, and losses have risen. Still cheap, but we are a bit wary.

Down 13% HOLD

Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)

Buy Price-$8.49

NEW Valuation $12.14 (Was $12.17, $9.60, $8.24, $9.16, $12.30, $11.86, $8.24, $13.05, $10.67, $8.41 $12.10, $13.40, $16.02)

Closed down $.14 at $7.92

SIGM announced Q4 2015 earnings (quarter ended January 31, 2015)  on April 1, 2015.

https://finance.yahoo.com/news/sigma-designs-inc-reports-financial-201500975.html

Revenues were $54.8 million up 42% from $38.5 million last year. GAAP net loss was $.10 a share, compared to a profit of $.04 per share last year (all from a tax credit). Non-GAAP profit was $.04 per share compared to a $.13 loss last year.  Our valuation was $12.14 down from $12.17 last quarter. Net cash per share was $2.58.

Guidance for next quarter looks much the same as this just reported quarter, but they gave indications that recent design wins in the telco sector should kick in later this year. We think there is still some upside here if they can demonstrate some revenue/profit growth later this year as they hinted.

Down 7%, HOLD

Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)

Buy Price-$4.58 (Was $5.08 before $.50 special dividend)

Valuation $13.07 (was $14.80, $17.72, $15.01, $15.10,  $14.55, $14.77, $16.26, $16.20, $15.37, $13.53, $15.85, $14.13, $11.38, $14.04, $18.54, $15.99)

Closed down $.03 at $7.49 (including $1.20 of dividends)

Pays $.48 annual dividend.

CCUR announced Q2 2015 (December 31, 2014) earnings on January 27, 2015.. Revenues were $16 million, down 10% from $17.8 million last year. They lost $.6 million versus a $1.1 million profit last year. Gross margin held steady at 55%. Our valuation was $13.07 down from $14.80 last quarter. Cash per share was $2.75 or 40% of the market cap. This is now a HOLD until we see what the new CEO can do and they get revenue growth back (and profits). We continue to collect the 7% dividend.

We have collected $1.08 in dividends so far (excluding the $.50 special dividend which reduced our basis).

UP 64%, HOLD

ARI Networks (ARIS.ob-Recommended 8/19/2006)

Buy price $1.61 (Was $1.78 before another $10,000 added, was $2.06 before double up),

Valuation $6.47 (was $5.96, $6.02, $5.67, $5.57, $5.70, $6.71, $6.41, $6.14, $5.97, $6.21, $6.13, $5.82, $5.81, $5.72, $5.65, $5.39, $4.86, $5.60, $5.73, $5.54, $5.74, $5.96, $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)

Closed at $3.40, unchanged.

ARI announced Q2 2015 earnings (quarter ended January 31, 2015) on March 5th. Revenues were $10.1 million up a whopping 25% over last year. They made a profit of $.02 per share versus a $.03 loss last year.  Our valuation rose to $6.47 up from $5.96 last quarter. Recurring revenue was $9.1 million or 90% of total revenue. All in all, a very nice quarter.

They are doing a good job positioning the company to be acquired. Hopefully this will soon happen with a $5+ price like we got for XRS in September 2014.

UP 111%, HOLD, Still a large valuation gap here and the Company is executing well.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)

Buy price $.27 ask,

NEW Valuation $1.39 (Was $1.34, $1.22, $.99, $1.02, $1.05,  $1.07, $1.14, $1.17, $1.34, $1.34, $1.37, $1.36, $1.23,  $.91, $1.21, $.71, $.83, $.88 $.96, $.93, $.75, $.85, $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)

Ask price $.52 closed at $.52

CTIG announced Q4 2014 (December 31, 2014) on March 30, 2015.

http://finance.yahoo.com/news/cti-group-reports-2014-financial-211145797.html

They had a HUGE Q4. Revenues were $6.1 million, which was 50% of their first nine months revenues. They also made $1.7 million or $.05 for the quarter. For the year they did $18.3 million in revenues and made $2.2 million or $.07 per share versus a $.04 loss last year. We did our valuation on 2014 year numbers and our valuation rose to $1.39 from $1.34 last quarter. If we used the quarter’s numbers, the valuation would have soared to $2.14. But since there is no guidance, not even a breakout of quarterly numbers, we are going to assume that this is a very positive “blip”. Still way undervalued, but no light as to when or how this will ever be properly valued.

John Birbeck announced his departure in October 2014. He was one of the group trying to take CTIG private for $.40 a share. Birbeck will remain a Director of the company. He owns about 7% of CTIG (about 2.3 million shares).

They need to get an investment banker and sell the company. Probably get at least $.75 a share for it from someone.

UP  93%. HOLD

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2 Comments

  1. Would be curious to hear if you have any further thoughts on DXM.

    The payoff at this point looks very binary – either the shareholders get wiped out at the end of 2016 or they refinance and the return from this level is 5-10x easily and quickly.

    I wonder if Mr. Walsh is truly in touch with how dire the situation is(the obvious answer being, of course he is! what CEO would not be) – but he started talking about acquisitions on the last call, and boy did that scare me. The shareholder value that is created if he can simply flatten revenue is astronomical.

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