Good morning members! It has been an exciting week for us with the addition of Matthew as well as the launch of a revamped website. Throw in a few earnings reports for our portfolio names also.
So, grab your cup of coffee and let's get right to it.
- Kelso Technologies: KLS.TO, initial purchase 5/2013, cost basis of $2.50
- XPEL Technologies: DAP.U, initial purchase 4/2014, cost basis of $2.00
- Ackroo: AKR.V, initial purchase on 12/2014, cost basis of $0.17
- Microbix: MBX.TO, initial purchase on 2/17/2015, cost basis of $0.44
- Beam Interactive: BZIC, initial purchase on 4/7/2015, cost basis of $.011
- Luna Innovations: LUNA, initial purchase on 6/5/2015, cost basis of $1.01
- Brekford: BFDI, initial purchase on 7/24/2015, cost basis of $0.22
- Biosyent: RX.V, initial purchase on 8/12/2015, cost basis of $6.35
Watch List: MZI.V, ENW.V, OSS.V, STAF, XX.V
- DDXS is being removed from the watch list as they have lost a significant customer which generated significant revenue. The story is no longer interesting to me.
A Quick Note about Our Portfolio
The portfolio has now been updated to include Matthew's positions as well. With stocks that we both own, Ackroo for example, we decided to combine our cost basis so there is no confusion for our members. We are planning on creating a dedicated page for our positions so it will be even easier to always reference the stocks in our portfolio.
The portfolio is not as concentrated as we would typically like at the moment, but read below and you will notice that we are considering to take our gains in Luna Innovations and to sell for breakeven in Microbix to make the portfolio a bit more manageable and to raise some cash. We will continue to cover these names, if we sell, as I know there is interest from our members in us doing so, particularly with Microbix.
A Review of Earnings Reports from the Week
Brekford reported an incredibly solid Q2 2015 earnings report this. Please check my post from earlier this week for all the specifics, but what is so exciting to me is how quickly the companies revenues are transitioning to recurring in nature due to the expansion of red-light cameras and the growth of the company's ATSE business unit. The revenue being generated on a recurring basis is at gross margins of 60%+ compared to average gross margins of the company near 20%.
The effects of the transition to the recurring revenues due to the growth of the ATSE business unit can easily be seen in the gross profit number being up over 60% compared to same period in 2014. This resulted in the net loss to $29,000 from $827,000 from the same period in 2014.
Hopefully you can understand why I am so excited about this company. In the release there is also talk about other potential contract wins and the addition of significantly more red-light camera installations to be rolled out this quarter. If management can execute properly once again this quarter, I feel strongly that the company will finally get discovered and the price appreciation of the stock will begin at a rapid pace.
One interesting nugget of information: I received a note from the Investors Relations group noting that they are thrilled with the company's progress and now feel like they are capable of expanding the story to potential new investors since the company is making significant headway.
Luna Innovations (LUNA)
Luna reported earnings this week as well. The company is now EBITDA positive, which is a very positive development. This was a very important earnings report as it was the first one with the combined numbers of API and Luna since the merger. During the conference call the question was asked if API's business was stabilizing if looking at it independent of Luna, and the numbers proved that it is. This should ease some of the selling pressure the stock has seen since the merger was announced.
It is likely that I will sell Luna this week and take my gains. There are other opportunities that I think will perform better than Luna over the mid-term and I would like to raise some cash to be able to act when those opportunities come up.
The Luna story is playing out just fine, but I think it may take quite a long time for the market to appreciate the story, and while I have no problem waiting for that to happen, I think there are better opportunities out there at the moment.
I will send an alert if I choose to sell this week.
I am not going to spend much time discussing the Microbix earnings release as it seems to always be the same 'ole story: revenues moderately up, in talks to commercialize LumiSort and Kinlytic, etc. I don't say this in a negative way at all, but I just am not sure there aren't better opportunities out there (including potentially adding to current positions).
As with Luna, if we choose to sell we will send out an alert.
General Market Comments
The volatility in the US markets continue to persist, as expected as noted in our weekly note last week. Again, I do not focus on the general market moves nor try to predict the direction. But, what I do pay attention to is the VIX as it generally is a very strong indicator of short-term market direction.
In looking at the VIX chart it's clear to see that some volatility is back in the markets. The VIX was down big on Friday with the reversal in the indexes, and until we breach $11.50 or so I wouldn't expect another "minor" pullback in the markets. The general theme of a "melt up" is still intact and until something major changes, such as major, multi-year trend lines being broken in the major indexes, the general theme of a"melt up" will likely continue.
But, hey, what do I know?! That's why we focus on undiscovered, significantly undervalued micro-cap stocks where the margin of safety is so big and the institutions aren't around to create significant volatility in our positions.
Matthew and I are looking forward to bringing you some great content in the weeks ahead, as well as expounding more on some of Matthew's positions that were just added to our portfolio.
The biggest compliment we can receive is the growth of members through word of mouth. Should you know others who would be interested in the service, please let them know. Better yet, let us know and we can reach out directly.
And remember, any suggestions or comments please shoot me a note at firstname.lastname@example.org.