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:

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