growth

Further upside for Fitlife Brands in 2020

/ Maarten Pieters / Leave a comment

I started to build a position in Fitlife Brands during August 2018 based on initial signals of a succesful turnaround and significant insider buying by their new (at the time interim) CEO Dayton Judd. At the time shares were trading at c. $3-4 (stock split adjusted) per share.

I continued to purchase shares at prices up to $5 per share based on continued aggressive insider buying by the CEO during the remainder of 2018.

FTLF Investment Longlist_insider buying

Early 2019 I applied to microcapclub.com with this idea and in May 2019 I wrote an article on SeekingAlpha.

Today, the shares hit a fresh 52-week high of $14.00 per share. Despite the significant increase in share price, it is still one of my best ideas for 2020. I still hold all my shares and believe that the shares can easily reach prices above $20 (in the absence of an overall economic downturn).

The Company earned c. $1.90 per share in the last 9 months (vs. c. $0.60 per share in the first 9 months of FY18). Q4 is generally weak, but $2 per share in FY19 seems possible. On top of that the Company is likely to continue their growth. A PE of 7 for a growing asset light company is too cheap in my opinion.

I want to keep the post short, so will focus at why I believe that sales (and subsequently earnings) are likely to continue to growth during 2020.

The Company owns a portfolio of nutritional supplement brands which are sold via retailers (mostly GNC franchisees) and online (only started recently as part of turnaround). Below the growth drivers for both the offline and online channel.

Offline

  • First 9 month sales increased from $13.1m to $14.0m, despite a lower store count and same store sales at their largest customer (GNC franchisees, responsible for c. 77% of revenue) – Fitlife Brands increased in store market share
  • It is not clear what exactly led to this growth (the Company reduced marketing budgets), however it is likely that the rebranding of one of their product lines (PMD) had a positive impact
  • During the current quarter the Company rebranded another important product line (NDS) and another product line (Sirenlabs) will be rebranded during 2020.
  • These rebranding activities and continuation of other activities that resulted in sales growth during 2019 could result in further sales growth in 2020 or at least keep sales stable despite weakness at GNC
  • During the current quarter the Company launched a product at 3700 Walmart stores. If succesful this could increase sales significantly and open the door for other Fitlife Brands products.
  • I am not very bullish about the offline channel, but believe that Fitlife Brands is in a good position to at least match 2019 results

Online

  • The Company sells most of their products online via their own website and Amazon
  • Sales increased from $0.5m in the first 9 months of FY18 to $1.8m in the first 9 months of FY19
  • Most revenue is generated from the Energize and iSatori brands. These brands are not sold exclusively to GNC.
  • Other brands which are sold “exclusively” to GNC, are also sold via Amazon and the Company’s website, however Fitlife Brands does not have the freedom to price these below 100% retail prices (which makes it difficult to generate good volume, as these prices are much higher than online products of competitors)
  • In the first 9 months of FY19 the Company launched one new online exclusive product
  • In the current quarter the Company launched two more online exclusive products, with more to come in 2020
  • The three new products launched this year, all rank in the top 4 of Fitlife products on Amazon (1 iSatori product and 2 CoreActive products). As only one of these products was included in Q3-19, it is likely that online sales get a good boost from these new products.
  • FTLF Investment Longlist_new online products
  • In November 2019 the Company hired a E-Commerce manager to further growth this channel
  • In the Q3-’19 10-Q the following is stated: “Although no assurances can be given, management believes that online revenue will continue to increase in subsequent periods relative to prior comparable periods given management’s focus on higher margin online sales.”
  • The Company is increasing their online presence aggressively (only very recently) by growing a team of Fitlife athletes that market the products on Instagram, Facebook etc. and receive a commission on sales they generate.
  • Based on the above I believe that the Company will be able to increase higher margin online sales significantly during FY20.
  • This will not only increase earnings, but also lower the dependency on GNC.
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Orbit International’s operating leverage part 2

/ Maarten Pieters / Leave a comment

An update on my previous post where I explained the significant operating leverage of Orbit International and why I believed that it was more likely than not that Orbit would be able to take advantage of it by growing revenue.

orbt power

I now believe that it is very likely that Orbit will be able to take advantage of it. A 100% subsidiary, Behlman Electronics Inc, was awarded a 22m USD indefinite-delivery/indefinite-quantity contract last week, of which 12m USD already has been obligated. This award has not been communicated via a press release yet.

Behlman Electronics Inc.,* Hauppauge, New York, is being awarded a $21,709,300 firm-fixed-price, indefinite-delivery/indefinite-quantity contract for the production and delivery of up to 180 Common Aircraft Armament Test Sets (CAATS) and 100 Pure Air Generator System Adapter Sets (PAGS PAS) for the Navy and the governments Spain, Italy, Finland, and Kuwait.  These CAATS and PAGS PAS will be used to test various Navy and Marine Corps bomb racks, missile launchers, pylons and rocket launchers at the intermediate maintenance level.  Work will be performed in Hauppauge, New York (53 percent); and Indianapolis, Indiana (47 percent), and is expected to be completed in September 2020.  Fiscal 2016 and 2017 aircraft procurement (Navy) funds in the amount of $11,648,070 will be obligated at time of award, none of which will expire at the end of the current fiscal year.  This contract was competitively procured via an electronic request for proposals as a 100 percent small-business set-aside; three offers were received.  This contract combines purchase for the Navy ($18,452,905; 85 percent); and the governments of Spain ($868,372; 4 percent); Italy ($868,372; 4 percent); Finland ($868,372; 4 percent); and Kuwait ($651,279; 3 percent) under the Foreign Military Sales Program.  The Naval Air Warfare Center Aircraft Division, Lakehurst, New Jersey is the contracting activity (N68335-17-D-0039).

Apart from this contract award, the company also repurchased a tremendous amount of stock, showing their confidence in the future. They repurchased 348,541 shares in the current quarter and 562,473 YTD (13.4% of shares outstanding).

These recent developments, combined with the strong balance sheet make it a very good investment opportunity in my opinion.

 

 

Telkonet ($TKOI), high growth, cash rich and nearing profitability in the IoT market

/ Maarten Pieters / 1 Comment

TKOI

Until recently Telkonet consisted of two business units:

  1. A high speed internet networking asset business unit
  2. Ecosmart – a business unit operating in the internet of things (IoT) market by providing both IoT devices and software to manage and save energy usage in all types of buildings

The high speed internet business was a business in slow decline generating nice amounts of cashflows. The company used these cashflows to invest in their Ecosmart business in order to stay relevant as a company in the long term.

The initial strategy of the company was to sell the first business unit once Ecosmart would reach profitability. However, recently they could divest the first business unit for a good price. Hence, the company decided to complete the divestiture earlier than planned and while Ecosmart is still unprofitable.

The company expects Ecosmart to be profitable by the end of the year. They expect to accelerate growth now they can fully focus on the Ecosmart business. The growth over the last couple of years has been lumpy but strong.

Recent significant insider buying in the stock by one of the directors sparked my interest. About half of the current market cap consists of cash. With only a couple of quarters of negative cashflow ahead of us (according to management) and good operating leverage, this seems like an interesting opportunity to buy a high growth company in a hot market at a cheap price.

TKOI - insider buying