|Two for Tuesday|
|Tuesday, 05 June 2012 11:40|
There are 2 stocks on the move today I find interesting. One is in the midst of a serious breakout in terms of price and volume. Still, the valuation remains attractive although the stock likely has a rise to the $4.75 level or so. The other is in the process of possibly being bought out by a group led by its Chairman, for premium to the current stock price. If successful, investors will get a 12.5% pop from current levels.
Reed’s Inc. (NASDAQ – REED - $3.69) bills itself as the producer of the top-selling sodas in natural food markets nationwide. As of the most recent quarter, the Company had products selling in over 12,000 natural foods markets and mainstream supermarkets.
What is cool and unique about Reed’s is its flagship, Ginger-focused beverages. Apparently, ginger has a number of health properties and is the fastest growing spice sold in the U.S. Ginger has been shown to treat motion sickness, aid in digestion, and is used as a cold remedy. The Company has six award-winning nonalcoholic Ginger Brews in its stable of offerings. What makes them further unique in the beverage industry is the fact that they are brewed not manufactured. Reed’s also uses fresh ginger, spices, and fruits in a brewing process that predates commercial soft drinks.
The Company’s revenue growth is impressive. At last count, REED has grown quarterly sales by an average of 25% for the last 9 quarters. For 1Q12, REED recorded $6.5M in sales, a 27% rise from the same period in 2011. In addition to introducing new products, and penetrating its existing, household name retail chain channels, the Company is rapidly deploying its products through numerous private label arrangements. This should help buoy revenue even further in 2012.
At current levels, the stock is trading around 1.2x what we estimate could be $30M in sales this year, which is still very attractive. The stock has hit new highs in recent days and is trading around 10x average daily volume the past few days as buyers hungry for stocks with strong numbers and new highs are in great demand. We see no reason why the stock could not support a price of over $4.75 per share, which would equate to 1.7x our back of the envelope revenue estimate of $30M for CYE12.
Given the sudden, huge volume shift higher in conjunction with the stock price, we caution investors that this should be viewed as a trade.
The other company, Tix Corporation (NASDAQ – TIXC -$2.00), provides discount ticketing, discount dinner reservations, and branded event merchandising in the U.S. The Chairman has delivered a proposal to the Board stating his offer to buy all the shares him and his family do not currently own, for $2.25 per share. The Board is exploring options and reviewing the proposal. Two other buyout situations, WOLF and NOOF have been written about in these pages. WOLF was a big success and NOOF has also worked out for shareholders, so far. The TIXC situation, while not providing a great deal of upside, could be a nice quick return, if the deal is approved. The current spread from the price of the offer and the current price indicates a little caution, but that is to be expected.
This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports.
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com