Email : [email protected]
URL : http://www.otcjournal.com
To
OTC Journal Members:
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How
To Buy A Business With $20 Million in Annual Sales and $1.5 Million in
Profits For Next To Nothing |
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The OTC Journal's mission
is to uncover investment ideas in the small and microcap arena you would
be unlikely to discover on your own. We provide information on the companies
we follow, then report corporate developments, news, and updates. Our content
is biased. If we didn't believe each of the companies we cover had the
opportunity to grow, succeed, and provide an extraordinary return, we wouldn't
cover them.
We always try to give a reasonable
appraisal of the risk. Most of the companies we cover will be highly speculative
in nature. If you want information on GE, IBM, or AT&T, there are hundreds
of places to find it. This newsletter would have no value. Occasionally
we will publish an idea for a short term trade in a more recognizable name,
but those ideas have become scarce as investors wait for the war with Iraq
to begin and run its course.
In preparing for a potential post
war rally, we are looking for compelling ideas to prepare for the inevitable
resurgence of interest in the stock market.
Over the last three months we have
introduced two new ideas:
-
Irvine Sensors (NASDAQ: IRSN),
introduced on December 17th, is a turn around idea. The company's financial
condition has improved considerably over the past year, and they have the
opportunity to land substantial new business from the Department of Defense.
The company has an impressive turnaround in progress, but it has not yet
been reflected in the price of the stock.
-
SHEP Technologies, Inc (OTC BB: STLOF):
Introduced just this past Friday, SHEP is highly speculative, but
has technology which could end up on millions of vehicles and helps solve
a major problem faced by car and truck manufacturers. We believe every
risk oriented investor should own at least a little of this one.
Today we are going to introduce our
members to a third idea. Having provided a turn around idea and high risk/high
return idea, today we are going to complete the triangle by providing a
small cap "value" idea. Today's featured company is probably
worth more liquidated than its entire market value, and most of the liquidation
value is in cash.
In fact, based on December quarterly
results, the company enjoys about $20 million in annual sales and about
$1.80 million in annual positive cash flow from operations. The market
is valuing their business at nearly zero. As investors, anytime you can
buy $20 million in annual sales and $1.5 million in profits for nearly
nothing, you have to pay attention.
For your consideration:
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CAM Commerce
Solutions, Inc (NASDAQ: CADA) |
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Stock Listing: NASDAQ: CADA
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Estimated Shares Issued and Outstanding:
3.1
Million
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Estimated Public Float: 2.8 Million
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Last Closing Price: $4.30
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Market Capitalization: $13.3 Million
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52 High and Low: $4.75 x $3.00
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Corporate Web Site: http://www.camcommerce.com
CAM Commerce is the largest supplier
of electronic commerce solutions catering to the highly fragmented market
of small to medium sized retail businesses.
CAM Commerce, with locations
in Fountain Valley, CA and Hendersen, NV has over 170 employees, and more
importantly over 10,000 customers. They provide turnkey solutions
for small to medium retailers to manage their entire businesses.
Their customers include the NY Yankees,
Denver Broncos, the Mattel and Fisher Price company owned stores, 300 of
the largest museums in the United States, Zoos and Theme Parks, and the
New Balance company owned stores.
The company provides systems for
small to medium sized retailers which include inventory control, point-of-sale
systems, fully integrated web and ecommerce solutions, invoicing, credit
card transactions, and auction management systems primarily focused on
EBay transactions.
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An
Extraordinary Value Opportunity |
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In the December quarter, traditionally
one of the weakest for the company, CAM Commerce reported a loss
of $184,000 (-.06 per share) on $4.88 million in revenues,
suggesting annual revenues are running just under $20 million.
However, a closer look at the company's
cash flow statement reveals the following:
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There were $273,000 in charges
for the non cash expenses of amortization and depreciation
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$50,000 was set aside for doubtful
accounts, also non cash
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$331,000 was charged for net
changes in operating assets and liabilities- non cash
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Net Result for the quarter: CAM
Commerce actually produced $470,000 in net cash gains from operations for
the quarter.
At the beginning of the December quarter
the company had $9.1 million in cash. At the end of the December
quarter, CAM Commerce had $9.414 million in cash. The gain
was all from operations. There were no financings of any kind.
CAM Commerce boasts an extremely
strong balance sheet. In fact, the December quarterly balance sheet reflects
$9.4 million in cash, $1.53 million sellable securities, and $1.6 million
in accounts receivable.
Against these assets, on the liability
side there is $568,000 in accounts payable, and a laughable $12,000 in
debt.
Therefore, CAM Commerce currently
has about $12 million in net hard liquid assets, mostly cash. This
equates to about $3.87 per share, and based on last quarter's results,
and that number is going up!
The company has exhibited little
top line growth over the past two years, but losses have dropped dramatically
from levels of one year ago. They are evolving their business model to
much higher margin revenue streams and being reactive to the demands of
their customers.
They have stopped focusing sales
efforts on new systems installations; mostly low margin hardware. Instead,
they are focusing on upgrading the existing systems of their 10,000 current
customers, and ongoing recurring revenue service contracts.
For example, CAM Commerce
currently has 1500 customers using their X-Charge product for credit card
processing. They receive a fee for every credit card transaction performed
on X-Charge. Based on current run rates, this high margin revenue will
come in at about $1.5 million this year, which is twice last year's rate,
and half what they expect next year. Management estimates this customer
base would be worth approximately $4 million if sold in the open market.
Of the ten thousand customers using
CAM
Commerce systems daily, there are three to four thousand on recurring
revenue service contracts. This is high margin business and an evolution
from new systems installations of past years. All in all, this company
is demonstrating it can morph its business model to meet the demands of
this challenging environment.
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The
Hard Part- Buying the Stock |
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If CAM Commerce were to simply
close their doors tomorrow and liquidate the hard assets of the business,
shareholders would probably get about $4 per share.
Since the stock closed at $4.30 today,
this means investors are only paying $.30 per share for an ongoing business
with 10,000 customers that achieved positive cash flow of $470,000 last
quarter on $5 million in sales. Analysts would say the company is trading
at zero "enterprise value".
Actually buying the stock at these
levels is the hard part. There is virtually no supply. The stock's average
daily volume over the past 20 days is an abysmal 8,100 shares per day.
Therefore, if you place a market order, you might get filled upwards of
$5 for a trade of 1000 shares or more.
The 90 day chart we have provided
shows volume has been picking up recently as investors study the current
financial filings and start to recognize the value. The stock could be
poised for a breakout. The chart displays the characteristics of William
O'Neil's famous "cup and handle" formation, believed by many to be represent
ideal entry point.
We learned about this company from
one of our many contacts around the market. This fund manager has been
a buyer with a two year window in time. His target is $10, and he believes
his investment is about as risk free as it gets for a potential double.
We would recommend paying up to about
$4.50 for this stock, and waiting with a limit order for days if necessary
to get a fill. At $4.50, you are really only paying $.50 per share for
the business, or $1.55 million in market value- absurdly cheap.
Of course, risk factors include the
possibility of poor future corporate performance and the usual market fluctuations.
However, the company's seasonally worst quarters are traditionally the
December and March. In discussions with management, we were convinced there
is a high probability the company will do even better in the future, and
the December quarter's results in a sluggish retail environment made us
believers.
We have decided to cover developments
at this company for at least the next six months as the value is so compelling
for our members. Look for low volume surges to push the stock higher, and
a post war rally of some significance could be in the works.
Charts Provided Courtesy
Of TradePortal.com
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