5x or Zero
Everyday I log into the Alpha Letter Telegram group to talk about stocks I like. I’ll post messages about a stock I am digging into. One that looks interesting. Another one that I wouldn’t touch with a ten foot pole. Overtime the community has taken a life of its own. Members talk daily and we all discuss everything and anything that is going on in the market.
Yesterday one of the members brought up a stock that looked so interesting I decided to write about it today. The company has a market cap under $3 million. The business has suffered from a lawsuit, negative unit economics, poor acquisitions and too much liabilities. With a stock price of only $0.08 it appears as if bankruptcy is on the horizon.
Despite the low stock price, the management team has managed to shed assets. They recently sold a business unit for $55 million. Another business unit was sold for $1 dollar yet millions of liabilities were transferred to the buying party. There is one business left and the management team recently announced they will be selling it.
If the management team is able to sell the company at their high range there is 575% upside from the current price. At the low end of the range the price target is zero. The upside to downside ratio is asymmetric. A small position can become a large position and a nice win. A loss is a drop in the bucket if you size the position responsibly.
I haven’t taken a position in the stock and likely won’t. On an absolute basis the stock is extremely small with a market cap under $3 million. A meaningful position to me in the company would mean I would have to buy over 5% of the outstanding and file with the SEC as a holder of the entity. TLDR: the stock is just too damn small for me.
Despite the lack of my personal ownership, I thought it would be good to highlight the opportunity here for readers. These are the kind of situations you find in microcap and nanocap land, not within the large issuances of the world. The kind of situations that can generate meaningful alpha to investors willing to do their own fundamental research. This is the stuff Wall Street cannot touch given the obscurity and absolute small size of the security.
Let’s dig in…
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