I’ve got a micro cap stock that I am starting to buy.
I’m not buying this stock for a short-term trade, rather I’m hoping that we are getting a chance to invest in a long-term turnaround. In fact, because the company’s not been kicking off much cash or earnings for several years, this stock, like our Axogen stock, needs to be thought of as a venture capitalist investment in many ways.
It’s not like I see a near-term catalyst in this stock and I don’t expect that we’ll see a drastic turn in the business in next 90 or 180 days for the company and if the company continues to burn cash they’ll obviously run out some day…
Also, please note that we’ve seen the stocks of the few small caps I’ve invested in before pop big when I send out the initial report like this and usually come back down in a few weeks.
Look, what I’m saying is that buying this stock is a very risky investment. But you knew that already. So let’s jump in.
The stock I’m starting to buy is TheStreet.com, which helped launch my career fifteen years ago. I wrote millions of words for the site and Jim Cramer helped me launch my hedge fund, put me on TV for the first time ever in my life and my career still benefits today from my time at TheStreet years ago.
There are two primary reasons I’m starting to buy some shares in this stock. First, as I mentioned earlier, the market is valuing the entire company and its nearly $70 million revenue run rate at about $33 million in market cap. Even more compelling is that since the company has $27 million in cash, that means the market is valuing the whole shebang at $5 million right now. And that valuation gives us a unique chance to bet on the new leadership, namely David Callaway, the new CEO of TheStreet who was the editor-in-chief of Marketwatch for like 15 years when he left in 2010 to take the job at USAToday as editor-in-chief. It’s not a coincidence that I wrote about David’s comments at the Money Show in San Francisco a few weeks ago:
“David mentioned that he thinks desktop websites will disappear before newspapers do. He also talked about how TheStreet is betting big on apps in the future.”
The idea that desktop websites will fade as delivery vehicles before the centuries-old newspaper will has been stuck in my head ever since. And you guys know that there’s no bigger believer in the App Revolution for the last eight years than me. I’ve even talked to David about helping TheStreet revolutionize its app product offerings.
TheStreet has a lot of interesting assets, including TheDeal and BoardEx, their database of corporate executives which will become increasingly valuable as deep learning enables value to be brought out of that data. TheStreet’s brand itself is very valuable and the potential to grow and create value out of its retail news/subscription business is bigger than ever as the company positions itself for a world that consumes its financial news and information from apps on smartphones and tablets. David and the management at TheStreet have a vision for tying all these assets together. Think Bloomberg-terminal on-your-smartphone for the 21st century analyst, trader and investor.
TheStreet is fully focused on embracing the mobile world, leveraging their brand in the retail world and starting to become app-centric, mobile-first on the retail side. That alone would drive growth in years ahead.
Here’s the fundamental overview:
|($ and shares in millions except for per share values)|
|TheStreet, Inc. (TST)|
|Total Cash & Investments||$28.6|
|Long-term Net Cash (Debt)||$28.6|
|Net Cash / Share||$0.81|
|Total Market Cap||$33.1|
|(-) Net Cash (Debt)||$28.6|
|Enterprise Value / Share||$0.13|
|2016 Sales Growth Estimate||-3.50%|
|2016 Earnings Estimate||($0.20)|
|2016E EV/Sales Multiple||0.07x|
|2017 Sales Growth Estimate||3.60%|
|2017 Earnings Estimate||($0.09)|
|2017E Enterprise Value Multiple||0.07x|
|Expected Dividend Yield||0.00%|
|Financial Health Metrics:|
|Debt / Capitalization||0.00%|
|Debt / EBITDA, Adj (LTM)||N/A|
|EBIT,Adj (LTM) / Interest Expense (LTM)||N/A|
|Net Tangible Asset Value||($3.7)|
One important thing to note is that TheStreet raised a bunch of cash back a few years ago when the stock was above $10 a share from an investor how still holds that preferred stock which has a liquidation value of $55 million and is convertible into common stock. The conversion price is 10x above today’s stock price it would be a long time before it could be converted into common stock. But it would mean that anyone who might try to buy the company (or take it private) would have to account for that $55 million liquidation value. We’re not buying this stock in hopes that it gets taken over anyway.
In the spreadsheet you can find here, my trusty colleague Liam Garritiy-Rokus has also included other financials for the company going back through the beginning of 2013. Below are some highlights:
- Total revenue was down 4.9% (y/y) for the first half of 2016
- Operating expenses were up 3.6% (y/y) for the first half of 2016
- Net loss in the first half of 2016 was $3.0 million larger than it was in the first half of 2015 and EPS was -$0.13 vs. -$0.05
- The company’s cash balance has declined y/y by $4.25 million (or 12.9%)
- Free cash flow was slightly negative (-$0.9 million) for the first half of 2016 and was -$2.5 million last year.
But that’s all the past. This investment, this management, this company are now about the future.
I don’t plan on making TST a big position, maybe looking to build it up to less than half of what I consider a full-size position. But I’m starting to buy some shares in TST today buying about 1/2 of the shares I want to own and will slowly scale into more shares over the next few days or weeks.
Disclosure: I’m long TST and also please make note of the friendships, business relationships and other connections I have to TheStreet.