Portfolio Shakeup and New Investment Announcement

I mentioned in this post from the past week that I would be consolidating my portfolio down into 4 companies from the current 6 that I own. As I mentioned in that post:

There are so many great companies that I "want" to own, but only a handful that I feel I "must" own that can drive significant shareholder returns. I am no longer interested in holding positions that will represent under 15% of my portfolio. In other words, I will not own a company if I am not committed to making it at least 15% of my portfolio. I put a lot of time into learning my investments in a way that I feel confident that I know them better than most, and structuring my portfolio in a way that reflects that by being highly concentrated is important to me. As Buffett said best, "diversification may preserve wealth, but concentration builds wealth."

With the above in mind, here are the companies that I have sold over the past few weeks. I still very much like these companies and I have no doubt that they will ultimately be successful, but I am not willing to put 15% of my portfolio into them, thus disqualifying them from my new portfolio criteria. I will still cover them and occasionally discuss their progress. Who knows, I may invest back into them one day.

  • RYU Apparel (RYU.V): (Sold for a small loss) Great company, great brand, great visionary in Marcello Leone. The reason I cannot get comfortable with 15% of my portfolio being invested here is that I just have no real grasp on the amount of dilution it will take over the next few years to scale the business the way in which the company is looking to scale. It is one of those rare instances where perhaps I would rather invest at $.30-.40/share instead of down here near $.15/share. I really respect and admire Marcello Leone and his passion and vision for what he is building. I will stay in touch with him and the company and will continue to follow its progress.
     
  • Jernigan Capital (JCAP): (Sold for a 40% gain) I absolutely love what this company is doing. Led by industry veteran Dean Jernigan and President/COO John Good, the company is quickly proving that it's business model is not a flawed one, but rather a potentially highly lucrative one for shareholders. Throw in a hefty dividend and this should be a very solid investment going forward. It was such a steal at $10 and I was glad we were able to capitalize on the market's misunderstanding of the company. The reason I sold is because JCAP will not provide the kind of multi-bagger returns I am looking for and clearly that is my focus when investing (however, returns of 100%-150% are certainly possible with JCAP over the next few years). I will continue to closely follow the company. 
     
  • Ivrnet (IVI.V): I have not sold Ivrnet, but rather have transferred over into an IRA account where I will let it sit for a very long time. Although it won't be part of my core microcap portfolio, I like it too much to sell, so transferring it into my IRA was the next best thing. While I will not be actively covering it here on this site, I will continue to follow it closely and can continue to be a resource for you when it comes to this exciting little company.

Now let's briefly discuss my portfolio, including a new company I have been buying over the past week:

  • Ackroo (AKR.V): (50% of portfolio) It is no secret to anyone how much I like this company, which is why it represents such a large portion of my portfolio. The company just reported Q2 2016 results which showed 77% YoY growth, with 30% of that revenue being organic, with continued cost and expense reductions over the prior year. Take a look at my write-up on the quarter here. Each and every quarter the company becomes more and more "de-risked", and perhaps we are a quarter or two away from the impossibility of being able to purchase shares anywhere close to the current $.25/share price. Steve Levely (CEO) has significantly increased the company's addressable market over the past year with key strategic partnerships with payment processors (none bigger than the recent First Data Canada partnership), so now it is time for the company to begin securing business with many new merchant partners. 
     
  • Kraken Sonar (PNG.V): (20% of portfolio) This tiny company is growing rapidly in quite the "unusual" industry of underwater unmanned vehicle and sonar technology. They should be closing their recently announced private placement this week, and continued developments with their business, both organically and via strategic partnerships, should drive the business forward. Their industry is in its infancy, and there should be some very nice tailwinds in months and years ahead as continued investment pours into the sector. 
     
  • ProMIS Neuroscience (PMN.TO): (15% of portfolio) This biotech company is looking to solve the science that no one has truly been able to solve yet -- discovering the root cause of Alzheimer's Disease and finding ways to treat it without the loss of efficacy and without harsh side-effects. Over the past 12 months the company has tracked perfectly along their 3-5 year blueprint, which probably explains why the stock is up nearly 250% from my purchase back in April. At one point in time this company represented roughly 25% of my portfolio, but I did what I felt was prudent and locked in some profits when I was up 330% or so on the position because anything, at anytime, can go wrong in the world of biotech. Do not invest what you cannot afford to lose into this one, because there is a real possibility it could go to $0. However, I of course do not think this is the case and am incredibly excited that they appear to be moving down the path of truly cracking the code for this terrible disease that affects so many.

New portfolio addition:

  • Galaxy Gaming (GLXZ): (15% of portfolio) Galaxy Gaming is one of the leading casino table game companies in the world with a current installed product base of over 4,000 gaming tables within over 500 casinos, making the company the largest independent provider of proprietary table games in the world.. What if I told you that you could buy the company's stock at half the price now as compared to when the company had nearly half of its current revenue/profits and nearly double the debt? To make it even more enticing, it's gross margins are at roughly 95% and a significant portion of its revenues are recurring in nature ("recurring" in its own unique way because people are always gambling). And, perhaps the most enticing, the Founder/CEO owns over 60% of the company. But wait...there is more. Due to the very high gross margins, the company generates nearly $1M in free cash flows per quarter. 

    With roughly $11M in debt (down from over $21M several years ago), yet approximately $1M/quarter in free cash flows, the company continues to aggressively pay down it's debt which makes the company more valuable each and every quarter on that simple fact alone. Throw in a quarter like the company had in Q1, and you have a profitable operation that is growing at a very nice clip that is becoming closer and closer to being able to re-invest all of their cash flows into the business rather than having to funnel 90%+ of those cash flows into debt repayment. The company has been very vocal about the fact they are aggressively looking to re-finance the remaining debt in a way that would allow them to immediately begin investing more into the business, so I suspect we should hear news on that front in the coming month or two. Based on my research and discussing with others, acquisitions within the industry take place between 6x-10x sales. At that valuation GLXZ would be worth $2.50-$4/share. 

    The biggest risk with GLXZ, in my opinion, is the unknown about exactly how will the company allocate its free cash flow once it is able to do so at a more significant level? Can the CEO prove to be a great capital allocator? That is the "wager" (no pun intended) you are making with an investment into the company.

    After doing your own due diligence you decide to purchase shares of the company, be absolutely sure you use a limit order and be prepared for it to take days for your order to fill. There simply are not many shares available (i.e. very low float), so expect volatility and expect difficulty in building a substantial position should you chose to do so.

What do you guys think about Galaxy Gaming, or any other portfolio companies? Let's engage in the comments section below. Feel free to contact me privately at anytime here

Just a reminder that all of the above is information only and should not be construed as investment advice. Please read my full disclaimer here.