Hedge Fund With Many Multi-baggers Sees 230% Upside For This Micro Cap With Tons Of NOLsJacob Wolinsky
Excerpt from the Stanphyl Capital letter to investors for the month of September 2018 discussing their long position in one micro-cap play. Stanphyl was profiled in the second edition of HVS and has had some of the best picks among all the funds (including Stanphyl with several 100%+ returns) we have profiled with 200%+ returns on some pitches.
At Stanphyl's price target the micro-cap below would have a 229% return from today's prices.
Teaser fror non subs followed by content for full members
XXXXXXXXXXXX (ticker: XXXX), a designer and manufacturer of XXXXXX for telecom companies, reported in August a solid Q4 for FY 2018, with revenue up XX.8% year-over-year (although they’d guided for even more, but based on the positive stock reaction no one believed them) and a meaningful improvement in earnings and EBITDA ex-restructuring costs. Most importantly, the company reiterated its guidance for FY 2019 (which began in July), projecting approximately $2XXM of revenue (approximately 7% better than 2018) and non-GAAP EBITDA of at least $1X million. Because of its approximately $3XX million of U.S. NOLs, $1X million of U.S. tax credit carryforwards, $2XX million in foreign NOLs and $X million of foreign tax credit carryforwards, XXX’s income will be tax-free for many years; thus, GAAP EBITDA less capex essentially equals “earnings.” So if the non-GAAP number will be $1X million and we take out $X.X million in stock comp and $X million in capex we get $5.X million in earnings multiplied by, say, 16 = approximately $85 million; if we then add in the $XX million of net cash and divide by 5.XX million shares we get $X1/share. However, the real play here is as a buyout candidate; XXX’s closest pure-play competitor,XXXXXXX sells at an EV of 0.7x revenue, which for XXX would be around $X00 million. If we value XX’s massive NOLs at a modest $1X million (due to change-in-control diminution in their value), the company would be worth $2X0 million divided by X.7 million fully-diluted shares = $3X/share.
This content is exclusively for paying members. Access all of our content on including years of timeless investment news and in depth analysis for only a few dollars a month by signing up here while also supporting quality content and journalism, or learn more about our premium content here
If you are subscribed and having an account error please clear cache and then cookies if that does not work email firstname.lastname@example.org and we will get back to you as quick as humanly possible