The best values are over the counter stocks - Whopper Investments

The focus of this site is incredibly small companies. As a matter of fact, I currently own only two companies with a market cap bigger than $100m (RDI and ASFI), and even those barely cross the nine figure?threshold. The reason is pretty simple: smaller companies have less ?professional? coverage and tend to have much cheaper stocks than large companies.

And a natural outgrowth of investing in smaller companies is investing in companies that aren?t listed on the NASDAQ or NYSE or don?t file with the SEC. Any true small cap junkie is likely very familiar with the ?filings and disclosures? tab at otcmarkets.com.

So, given how often I use their site and trade through their network, I thought I?d go ahead and check out the stock of the company that runs the OTC markets (named,?conveniently?enough, OTC Markets Group (OTCM)).

The first thing that jumped out at me about OTCM is no, they are not the cheapest priced stock on their exchange (I can?t tell you definitively who is, but I?ve covered some dang cheap ones!). But that doesn?t mean their a bad value at all.

Let?s start with a simple little test. NYSE is getting acquired for between 10-11x EBITDA (on the higher end) by my quick calculations (side note- urbana has enjoyed quite a run since then). OTCM is growing faster and would likely have the same % of synergies to a larger purchaser, so let?s just say it should be priced at 10x EBITDA. OTCM has done just under $10m of EBITDA over the trailing twelve months, so let?s just make the math easy and say they?d be worth $100m to a strategic acquired.

OTCM has some significant net cash on their balance sheet. They did just pay out a special dividend and quarterly dividend at year end that don?t show up on the balance sheet, so once we adjust for that they have over $10m in cash with no debt.

Put it all together and OTCM would be worth $110m in this very simple analysis. With under $11m shares outstanding, that represents a target share price of $10 per share or so.

With shares trading in the $7.50-8 per share range, you might think that?s not that big a discount. After all, that analysis included a ?control? premium, and most value investors wouldn?t be too keen on pay 10x ebitda for any stock.

But I think there are other positives to this story too. Again, revenues are growing quickly here- they?ve pretty consistently grown over 10% year over year, and they seem set to do that again this year.

And there should be plenty of growth left, as I think there are nearly unlimited growth opportunities for them to tap into in the small cap stock world. Imagine what would happen if they could get every NYSE and NASDAQ firm w/ a market cap under $100m to cut some costs and switch over to their market? That?s just one of the many growth opportunities I could see for them.

Best of all, insider ownership is high. The CEO is credited with turning them around and owns ~40% of shares outstanding. His interests are clearly aligned with shareholders, as we saw from the special dividend.

So yes, overall, there are tons of positives. However, I am a deep value investor, and this seems more along the line of ?(very) solid company at a solid price)? than ?mortgage the house, this is the steal of a lifetime? to me.

But a very interesting company to keep an eye on none-the-less!

Disclosure- Long RDI, ASFI

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Disclaimer

The content contained in this blog represents only the opinions of its author(s). I may hold long or short positions in securities mentioned in the blog. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. Read that last line again. Also, this blog is not a solicitation of business. The content herein is intended solely for the entertainment of the reader and the author(s).

Related posts:

1. Some great Japanese value stocks from around the web
2. How to follow stocks + Suggestions for following filings of illiquid stocks
3. How to find great micro-caps

Source: http://www.whopperinvestments.com/the-best-values-are-over-the-counter-stocks-so-is-otcm-a-great-value-too

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