A Winner for the Second Half
I am a big believer in thematic investing. Moreover, I am a big believer in investing in companies that have reached inflection points in their business model and exhibit multiple favorable characteristics that make a purchase of the stock that much more attractive.
Sometimes, in the small-stock arena, a stock has a bit of a complex story that hinders the shares reaching their ultimate potential. Some would call that a failing. I refer to it as an opportunity.
Park City Group, Inc. (NYSEAMEX: PCYG - $3.35) of Park City, Utah is one such company. Remarkably, the company has nothing to do with the ski business. Of course, would I profile a company in that segment in May?
Led by a co-founder of Mrs. Field’s Cookies, Park City Group is a Software-as-a-Service ("SaaS") provider to major retail entities, with a focus on the grocery, drug, and mass merchant verticals. The Company’s SaaS enables its clients to have unique visibility into their consumer goods supply chain.
Much like Wal-Mart (NYSE: WMT) has dominated the retail space due to its ground-breaking use of logistics and supply chain management, PCYG has more than $100 million invested in development and 16 years of commercialization surrounding its proprietary scan based data platform. As a result, PCYG has designed and sold its proprietary systems with a great deal of success. In fact, its customer base reads like a who’s who of retail.
Through its proprietary process known as Consumer Driven Sales OptimizationTM, PCYG Group helps retail and consumer packaged goods customers turn transactional information into actionable strategies to lower inventory, increase sales and improve efficiencies in the supply chain. The company's services increase its customers' sales and profitability, while ensuring regulatory compliance for both retailers and their suppliers.
PCYG’s products are deployed in a hub-and-spoke format whereby a headquarters or regional site implements it first and then it is released to the spokes along the network. Information is then sent back to the hub through the spokes as well.
The company recently released its 3Q12 financial results and although they were solid, the near-term future expectations are outstanding. During the third quarter PCYG secured its first major win in a retail vertical outside the grocery store industry. This retail hub has the largest store system of any of the company’s existing customers and the pace of supplier spoke growth grew during the third quarter.
Moreover, management noted that it is seeing an acceleration of customers deploying more of its solutions deeper into their supply chains, which sets the stage for a significant revenue ramp, beginning in the current quarter. Since PCYG’s customer base is comprised of large chains, the market opportunity is substantial as the existing customer base is penetrated even further.
From a trading perspective, we think PCYG is very attractive. The stock is above both its 20-day and 50-day moving averages, and is basically smack dab in the middle of its 52-week range. Insiders and institutions own roughly 60% of the company and though volume remains light, we believe that will change as the progress in the quarter’s business takes hold. Plus, since the stock is only 16% below its 200-day moving average, a buy signal alert will go out once the fundamentals push the stock past this milestone.
A combination of fundamental and technical stock events is hard to find, but we believe that the convergence will occur with PCYG this summer. If so, the stock could move 50% higher from its current levels.
Inflection Point City
You can feel the hesitation in the market right now. With the month of May barely half over, key indices are already down 4-5%. Face it, there ain’t too many stocks going up right now. If this persists, the C-word will start to come into the conversation.
Yes, the dreaded … correction. If my calculations are correct, we are down about 8% from the calendar year high, which was achieved just six weeks ago. If the stock market declines by 10%, that is considered a correction.
Conventional wisdom on the topic was that a market drop of 10% or more was a crash and a decline of 5-9% was a correction. Given the volatile nature of the past few years, this is not likely the case any longer. Thus, the number to watch is the crossing of the 10% mark. That will be an inflection point for some prognosticators.
We Are Lucky
Sixteen y ears ago today I was head of Josephthal’s Washington D.C.-based Emerging Growth Group and head of Israeli stock research. What makes the day interesting on a personal and professional note is how much things have changed in the investment world. Sixteen years ago I hosted what at the time was the largest stock conference of its kind ever held in the U.S. in terms of number of participants in attendance, media, etc. Today, these types of conferences happen all the time … virtually.
One of the C-level guys representing one of the companies back then happened to be in town yesterday and we had breakfast together. He is with a great company that will record $500 million in revenue this year so it really is not a candidate for us here at Penny Stock Junction. It was great getting an update but the more we talked, the more I realized how lucky we are as investors and followers of the small stock world.
How Do They Do That?
Ideas come to me in the strangest places. I was with a large group of friends over the weekend and the heath care topic invariably came up. One of the guys there had a mother recuperating from hip surgery. Another had some very bad luck: his two children both had broken bones in successive months in freak accidents. Of course the conversation migrated to sports and our beloved Baltimore Ravens in particular, as we projected how long 2011 NFL Defensive Player of the Year Terrell Suggs would be out with an Achilles injury.
There were doctors, surgeons, and sports medicine specialists in the room so the discussion was fascinating. After hearing how quickly some of these surgeries to repair bones with pins and biologics, etc. are completed and how quickly patients have mobility, I thought to myself how much longer it would take me to put together an entertainment center versus healing broken bones. The strides modern medicine has made truly are extraordinary.
Following the discussion I determined that I must engage in some penny stock investigation of some companies that operate in this space. Ladies and gentlemen, I found a good one.
How Do They Do That?
Ideas come to me in the strangest places. I was with a large group of friends over the weekend and the heath care topic invariably came up. One of the guys there had a mother recuperating from hip surgery. Another had some very bad luck: his two children both had broken bones in successive months in freak accidents. Of course the conversation migrated to sports and our beloved Baltimore Ravens in particular, as we projected how long 2011 NFL Defensive Player of the Year Terrell Suggs would be out with an Achilles injury.
There were doctors, surgeons, and sports medicine specialists in the room so the discussion was fascinating. After hearing how quickly some of these surgeries to repair bones with pins and biologics, etc. are completed and how quickly patients have mobility, I thought to myself how much longer it would take me to put together an entertainment center versus healing broken bones. The strides modern medicine has made truly are extraordinary.
Following the discussion I determined that I must engage in some penny stock investigation of some companies that operate in this space. Ladies and gentlemen, I found a good one.
