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Dot Hill Systems
uSell: An Unknown ReCommerce Marketplace With An Impressive Growth Story
•uSell is experiencing rapid growth, as revenue in 2013 increased 125% y/y and devices sold through the platform have increased 80% y/y.
•There is ample supply in the marketplace for uSell to capture. Consumers currently have $25B in electronics inventory to sell, with an additional $12B being added through 2014.
•The smartphone reCommerce marketplace is fragmented. uSell is consolidating this market by providing a service with more competitive advantages than its peers. Its valuation could grow to be $130M.
•Management owns nearly 30% of the company, aligning their interests with that of shareholders. An uplist to the Nasdaq is a significant and imminent near-term catalyst.
•An 85%+ GM, coupled with high growth and cut costs will lead to EPS of $0.35-$0.40 in 2015. A 25x P/E results in 100%+ upside potential.
uSell (OTCQB:USEL) is a US-based reCommerce marketplace that instantly finds cash offers for smartphones and electronics. The company provides a technology platform matching individual sellers with large buyers. It has had a phenomenal 2013, with revenue growth of 125% and improved marketing spend efficiency. The company is targeting a multi-billion dollar market, and has the competitive advantages necessary to successfully capture and profit from this previously fragmented marketplace.
In comparison to other marketplaces, uSell has a smaller market capitalization that will grow more in line with its peers as it continues to execute its business plan. Moreover, $4M of the company's recent raise is slated for marketing that will bolster business activity. With 29.4% insider ownership and an imminent move to the Nasdaq, shares are ripe for the picking. Looking forward, uSell has the potential to earn $0.35 to $0.40 in 2015. With a conservative 25x P/E ratio, this equates to a PPS of $9.08, or 100%+ upside potential.
Crossroads: At The Corner Of Organic Growth And A Strong Turnaround
Crossroads (NASDAQ:CRDS) is a micro-cap, global provider of data storage and protection solutions that has gone largely unnoticed in the marketplace. Crossroads has had lackluster results over the past few years, but the future looks to hold significant potential. With new management guiding to operating breakeven, or better, for FY14, this would mark the first year in the company's history of achieving breakeven, Should this growth continue beyond FY15, with attractive 80% gross margins, we will likely see a much higher price tag on shares. Based on the fundamentals Crossroads could be a $4-$5 dollar stock by year-end and perhaps far higher should they succeed in recent litigation.
Recently, Crossroads chairman Jeffrey Eberwein purchased an additional 100K share block at $1.90. With his successful investing history in turnarounds, it is a positive sign to see a large insider increase his stake. Crossroads has also initiated new lawsuits against large companies such as Cisco (NASDAQ:CSCO), NetApp (NASDAQ:NTAP) and Quantum, to go along with recently filed suits against Dell, Oracle (NYSE:ORCL), Huawei, and Tandberg. The company has a highly successful past in defending its intellectual property and this case is due for a Markman hearing in March or April. With a large net operating loss carryforward on its books, Crossroads can avoid paying taxes on any damages awards, settlements or ongoing royalties that it may receive. Nasdaq has notified Crossroads that they are delinquent due to the amount of shareholders' equity which the company holds. This is set to be largely ameliorated as the company's "Full Ratchet" provision applied to its preferred shares is set to expire. This paves the way for the company to regain compliance with Nasdaq.
ViryaNet: An Under The Radar Technology Gem's Cloud Transition Could Yield Significant Upside Potential
Viryanet (OTCQB:VRYAF) is a micro-cap, web-based software application provider for mobile workforces, with high margins, a clean balance sheet, and a surprisingly blue chip roster of global customers for a company of its size. Unfortunately, Viryanet has also been plagued by choppy results over the last several years, although 2013 marks a significant improvement - a trend I believe will continue for reasons I detail below.
With important new distribution partnerships, and a shift to a cloud-based business model, I anticipate ongoing revenue growth and further gross margin expansion from the current 63.3% level. I believe ViryaNet should earn $0.40-$0.45 in EPS in 2014, based on 5-10% top line growth and further gross margin expansion, which at a 11-12x multiple (well below the earnings growth rate), vs. current 11x 2013, would imply 100%-200% upside. If I am wrong, and revenues are flat or slightly down, I'd still anticipate a structural improvement to gross margins, resulting in flattish EPS, and limited downside to shares.
International Commercial Television: Flagship Product International Expansion Should Drive Substantial Upside
Some of the most opportune inflection points often occur quietly. Such is the case with International Commercial Television (OTCQB:ICTL). An unknown name to most investors, the company nonetheless reached an impressive inflection point in the first nine months of 2013, with sales growth of 144% and record earnings of $.08 a share.
Of more importance, new growth initiatives in new domestic verticals and in new international markets during 2014 and 2015 set the stage for continued growth for the company. With strong leverage in its model as sales ramp this year and next, the company could earn above $.20 a share in earnings in 2015 - meaning shares currently trade at just 4x my 2015 estimate.
With record sales and record earnings on the horizon and a stock price that is still 75% below its 10-year highs, and significant insider ownership shares of ICTL possess minimal downside and tremendous upside. As new investors discover the value in ICTL's share price, the potential for a move to $2-$3 in 12-18 months is realistic.
TransGaming: An Undiscovered Niche Technology Powerhouse
Opening and Company Background
Headquartered in Toronto Canada, TransGaming (TNG.V, OTCPK:TNSGF) is an under-the-radar technology company focusing on three unique areas in the technology realm. The company is segmented into two divisions. The graphics and portability group includes Cider, that allows for the quick conversion of games from one platform to another. This division also includes SwiftShader, a 3D renderer that is licensed and currently utilized by industry giants such as Google and Adobe. The digital media group focuses on cloud based casual gaming on Smart TV's through set top boxes and Smart TVs. This unique service is provided through TNSGF's GameTree TV platform.
"We act as the bridge for major PC developers, such as EA, to enable their games on multiple platforms." - Vikas Gupta, CEO
TransGaming is not new to the area of program conversion. In 2004, TNSGF released Cedega which allows gamers to run popular PC games to Linux. TNSGF later moved on to the unmet market of allowing PC games to be played on Mac computers. In 2006, TNSGF released a program known as Cider to developers to enable the deployment of PC games on Mac computers. In 2009, TNSGF released an innovative software known as SwiftShader - a 3D rendering software that enhances the quality and processing of 3D images up to 100x compared to traditional renders. SwiftShader is currently used in Google Maps and Adobe's Flash Player and the company is continually looking to monetize its patent portfolio.
SuperCom's SmartID Acquisition: Immediate Accretion Should Yield A Reevaluation
•SuperCom's acquisition of OTI's SmartID division is imminent, and the closing is a pending catalyst for the company.
•SmartID is 2x the size of SuperCom, so the deal could position SuperCom to win bigger awards moving forward.
•The two are direct competitors, so the deal should reduce price pressure and improve margins over time.
•The financials for the deal are highly accretive to SuperCom and should result in a higher share price once its understood by the Street.
•The share issuance to pay for the acquisition was recently cut in half versus the initial filing. This is beneficial as the original funding plan would have resulted in dilution that would have substantially offset the benefits of the transaction. The smaller deal size suggests management is focused on value-creation for shareholders.
•The Company will be the beneficiary of growth in several key target markets on a macroeconomic level.
•SuperCom's growth strategy is intact and being executed upon.
•Management is aligned with shareholders, with a substantial ownership by one executive of over 45%.
•The company was originally over-leveraged, creating the initial investment opportunity that is still in play.
Dot Hill Systems: Recent Sell-Off Offers Clear Path To 95%+ Upside By Year-End With Limited 16% Downside:
1. Company growing faster than market coupled with operating margin expansion.
2a. Guidance could prove conservative, as management has recent history of under-promising and over-delivering.
2b. Management had options struck 3 days after 4Q earnings were reported, and therefore had an incentive to be conservative with guidance.
3. Guidance based on wins. Timing and sell-through are uncertain, wins are definite
4. Strong patent/IP positioning should ensure strong sustainable competitive position.
5. Solid balance sheet and NOLs enhance value.
6. Small market cap and limited sell-side following enhance opportunity.
7. Potentially compelling buyout for larger competitor.
Shares of Dot Hill Systems (NASDAQ:HILL) have declined over 30% following the company's recently reported 4Q results, creating a compelling buying opportunity. With shares up almost 4-fold in 2013, and almost another 50% in 2014 prior to the earnings report, expectations were high. The company's in-line 2014 outlook, coupled with soft 1Q guidance drove the sell-off. However, with significant wins slated to ramp in 2014, and a management that has executed, and under-promised and over-delivered in the recent past, there's every reason to believe Dot Hill's growth and margin expansion story remains intact. I believe shares of Dot Hill should see 95% upside and a return to recent highs over the next few quarters, and could be a double or more over 12-18 months, if they execute their plan.
VirnetX: A CAFC View Through A Clear Lens:
•VirnetX (VHC) investors (long and short) are closely watching for a decision in the Court of Appeals for the Federal Circuit (CAFC) case between VirnetX v Cisco (Apple in reality).
•Fact seekers can be easily confused and misled by half-truths and partial details; this is particularly problematic as a pending binary event looms.
•Analysis of the damages theories used by VirnetX’s expert are supported by CAFC case law, and VirnetX’s approach was favorably cited in a recent Precedential Opinion.
•In the face of a potential victory over Apple (AAPL), VirnetX is highly shorted; however, VirnetX management has commissioned a forensic specialist to track suspicious trading and report it.
Investors await a monumental CAFC decision with regard to VirnetX's (NYSEMKT:VHC) case with Apple (NASDAQ:AAPL). If the District Court ruling is upheld, the pending CAFC decision will be remarkable for VHC, as the implications are worth potential billions to VHC, which is a fraction of AAPL's cash balance. On the other hand, it will impact AAPL's margins, which definitely captures senior management's attention.
As with any Intellectual Property (IP) investment involved in litigation, there are many complex pieces to the puzzle. These areas can be misconstrued or otherwise interpreted in an unclear manner. This article is an effort to isolate a few of these confusing points and share details that provide a more accurate view. I have read articles (I,II,III) and Twitter activity that offer limited views on relevant events, this blog will expand on the facts.