Could this underfollowed stock make another big run on M&A news as it did in May?
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THE OLD LIFEAPPS
The Company’s legacy business is as a digital media provider of apps and content in the medical, wellness, and popular fitness segments. The Company is a leading, authorized developer, publisher and licensee for Apple iOS – iPhone, iPod Touch, and iPad – and Android tablets on Google Play and Kindle Fire and Androids via Amazon Mobile Marketplace.
Building on the success of the popular LifeApps MDWorkout mobile app platform, the Company seeks to bring together consumer mHealth lifestyle products, like-minded health organizations and medically-based health and fitness research organizations to create apps. The convergence of consumer apps with medical programs and clinical research is a key cog in the mHealth marketplace, and LifeApps is uniquely positioned to remain a player in this space.
THE NEW LIFEAPPS
Still, despite the popularity of its content, management was unable to generate major revenue and secure a profit for the digital media segment. As a result, the Company changed the name of the firm from LifeApps Digital Media to LifeApps Brands and modified its strategy by leveraging its knowledge of the medical and wellness arenas. Thus, management charged its leadership to evaluate new M&A opportunities in the medical, health, wellness, technology, and science realm, and actively engage in M&A, if significant growth can be achieved with meaningful ROI.
In May 2016, LifeApps entered into an LOI with a medical devices company. Although the deal did not transpire, LifeApps retains non-exclusive rights to acquire the firm and LifeApps has retained an investment firm that specializes in emerging company M&A to source candidates and help perform due diligence. The stock popped on the news and following the filing of an 8-K of the aforementioned deal, and we believe that history can repeat itself. Moreover, we believe that management can leverage its reputation in health care’s digital world, and successfully close a transaction of a company that offers in-demand physical and/or digital products, which would substantially raise the Company’s profile and its current, anemic valuation, which does not reflect current prospects. After all, when a public company buys a private company it enjoys leverage of the private market valuation prior to the purchase, and reaps the benefit of the public market valuation for that entity, following the closing of the transaction.
Obviously the biggest risk to these shares is failure to acquire a company that is viewed as an asset on which to build the new LifeApps. However, with the aid of its partner, we believe this risk is mitigated.
There are also market risks associated with LifeApps. Volatility and liquidity are typical concerns for microcap stocks that trade on the over the counter market especially those that are not generating meaningful revenue. Finally, the shares outstanding of this stock could increase due to potential capital needs or to execute future acquisitions. However, since the proceeds of any future funding would likely be used in large part to fund its advanced exploration and development efforts, we believe that any dilutive effect from such a funding would be nullified by a related increase in overall market value.
LifeApps’ current low valuation could take a significant major turn higher in the near term. When LFAP announced it signed an LOI in May, the stock ran from a sub-penny to $0.08 per share on enormous volume. Although that deal did not close, it illustrates the impact of a targeted acquisition on these shares. We believe management is closing on other targets, with the aid of a firm specializing in emerging company M&A.
With early stage companies, it is always a bet on management. Kudos to LifeApps management which exited businesses that were a drag on finances and reverse split the stock to a normalized level and funded operations through loans to the company from its own pockets, rather via than unfavorable outside debt or equity financings. These steps strengthen our belief in successful M&A execution.
We believe the stock would once again move substantially higher on news of a deal in the health care space. Based on recent events, the current price appears to be an excellent entry point and believe further value will be garnered once a deal is closed. In our view, LifeApps represents a high risk investment or a short term trade that offers considerable upside.
RECENT TRADING HISTORY FOR LIFEAPPS BRANDS, INC.
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Senior Analyst: Robert Goldman
Rob Goldman founded Goldman Small Cap Research in 2009 and has over 25 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund.
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