Sunday, May 9, 2021

DGIX: Growth at a Cheap Price

Bottom line up front: Dyna Group International (ticker DGIX) is an overlooked net-net where management thinks that growth opportunities are available.

When it comes to stock ideas, I really only want to talk about stocks that aren't covered by anyone, anywhere. 

DGIX is a stock that fits that bill. 

Their business is pretty simple: they produce professional and college sports team drinkware.

Here's their website: https://www.gap1.com/

Great American Products is the main subsidiary of DGIX.

Yeah, it's not an exciting business, but who cares. All that matters is whether or not it's cheap enough.

Let's start with a long-term chart:


The stock is trading near all-time lows with no volume in sight. It definitely looks to me like no one's interested in this one.

Below are the financials. They're on the the Company's website, but you have to ask for the password to access them.




The market cap is currently $5.13M (share price $0.39), which means it would be selling at a P/E of around 4.5, 0.32x Revenues, 0.43x Book value, and 0.48x NCAV . This is before some adjustments that need to be made.

Update: I accidentally used the September 2020 balance sheet for book value and NCAV. Using the December numbers gets 0.41x Book value and 0.44x NCAV.

According to the 2020 annual letter, there were some unusual gains from a bad debt suit settlement and market gains. I've asked the company to elaborate on this but have not yet gotten a response. If we just assume that this is what makes up most of "Other income" and "Other comprehensive income" and subtract it out, we get a P/E of  around 12. Although it's not as good as 4.5, it's not bad, considering that earnings and sales were likely depressed, due to COVID having a negative effect on sporting events.

Update: I messed up the earnings calculation. The correct adjusted P/E is around 7.

Book value and NCAV also probably need to be adjusted a little, due to the $775,000 PPP loan. Assuming the loan gets forgiven (still waiting for the Company to confirm this), the stock is actually selling at 0.40x book value and 0.44x NCAV.

Update: Using the correct December balance sheet numbers gets you adjusted numbers of 0.38x book value and 0.41x NCAV.

So, say what you want about the P/E, but the stock is definitely selling at a steep discount to NCAV. I think this is mainly because the stock is just completely overlooked:
  • Company doesn't file with OTCMarkets, and they de-registered with the SEC in 2005
  • No one's blogged about it, as far as I know
  • Not in Svenda's Manual
  • Hasn't been mentioned on iHub since 2017
Concerning growth, here's what's mentioned in the 2020 annual letter:

"The company is well positioned to not only survive but for continued growth and increased prosperity...We are excited about the growth opportunities we have identified. The future for our company looks very good."

I've also asked the Company to elaborate on these "growth opportunities" but have not yet gotten a response. I will update the post if I do. It should be noted that some of this verbiage was repeated word-for-word from the 2019 annual letter.

Will the Company deliver on its claims of growth, and will that growth be value-adding? I don't know, but with the stock selling at 0.41x NCAV, I doubt you're paying up for any of that.

Disclosure: Long DGIX

Tuesday, April 13, 2021

PDRX: Selling for Less than Liquidation Value

PD-Rx Pharmaceuticals (Ticker PDRX) is a company that's been around for over 33 years. Ever since COVID hit, the stock has been demolished. Interestingly enough, the stock hasn't really recovered like most other stocks.

Here's a 5-year chart:




Note the price decline at the end of 2018. This was probably mostly due to investors selling after collecting a $2.20 dividend at around that time.

I'm posting about PDRX because it is insanely cheap based on the numbers. Here are some of the key financial numbers over the past five years (fiscal year ends in June):



2020 2019 2018 2017 2016
Revenue ($M) 21.02 20.87 24.97 25.99 21.47
Net Inc ($000) -384.1* -12.9 621.2 627 507.7






Shares (M) 1.71 1.71 1.71 1.72 1.72
EPS ($) -0.22* -0.01 0.36 0.36 0.3
BV ($M) 6.63* 7.01 10.8 11.34 11.22






Dividend ($) -- 2.2 0.66 0.3 --






*does not include PPP forgiveness






The current market cap is around $4.9 million (share price $2.85), so the company's selling for less than 0.25x sales and less than 0.75x book value. Actually, book value is understated here because of the $993K PPP loan liability, so you're actually getting it for even cheaper. Also, the majority of the assets are current assets, so the company's selling for less than NCAV.

As far as where to find these numbers, you have to go to the company's website, because they do not file with the SEC or OTCMarkets. This is really want you want in a stock, because it's stuff like this that can make things stupid cheap.

Let's talk about some of the pros and cons of this company:

Pros:

- Selling for less than NCAV (approximation of liquidation value)
- Low and stable share count
- No preferred shares
- Management is shareholder friendly
    - They announced lowering their own salaries to offset some of the company's losses
    - They tend to issue dividends when there's excess cash
- Company is overlooked, due to lack of reporting to SEC/OTCMarkets

Cons:

- Likely not a growth company (management issued dividends in the recent past due to lack of investment opportunities)
- Company is currently unprofitable (in part due to COVID)

So, what's my investment thesis here? Basically, it's that the company returns to profitability as recovery from COVID happens and management cuts costs. If they're able to return to profit levels of something like the past, I think the stock could double from here.

Disclosure: Long PDRX

Wednesday, February 17, 2021

Getting Started

 My name's Daniel, and this blog will be for investment ideas I have within the illiquid nanocap space.

With that, let's get started.