An open letter to CVSL’s John Rochon was published yesterday (click here to read it) after the market opened and it will be interesting to see how the company responds. We believe that CVSL management should take advantage of how low the stock has fallen and it is hard to conceive of a way to create better long-term value than by offering a program for their sales reps to become owners (shareholders) of CVSL. Though the Dutch Auction Tender Offer approach mentioned would give us the quickest boost to the $2 range (likely price range given the current trading price), we believe that investing in the sales force through a non-dilutive program to help as many reps as possible become “owners” of the company through stock ownership would be a better long-term investment. We hope that Longaberger, Agel, Kleeneze, Project at Home, Tomboy Tools and other company sales people will join with us in pushing for some kind of stock purchase program that would be available to all sales reps. The sooner this happens, the better because we believe the stock is going to move significantly higher over the remainder of this year when investors see the larger divisions (Longaberger and Agel) start to turn a corner and the opportunity to buy CVSL shares in the $1.50 range may not be around very long.
Speaking of Longaberger, all reports from the home front suggest that the Longaberger convention was a hit with sales reps, old and new. Longaberger CEO John Rochon Jr. indicated when pressed that Longaberger sales are trending better than expected and more importantly, he indicated that the number of new sales reps has grown “exponentially” over the last 60 days. This is a very big deal (particularly coming on the heels of such a long fall in those numbers) because big revenue gains usually come soon after we start to see growth in the number of new sales reps. This is the strongest indicator we have received yet that tells us the Longaberger business has turned a corner and we will begin to see material growth in Q3. We strongly encourage participants in the Groove community to buy as many shares as possible while the stock is still down this low.
For Longaberger, Agel, Kleeneze etc. sales reps, the time is now to let your management team know that you want to own a stake in the company and given that it will take a little time to get one set up, you may want to open an Etrade, Ameritrade, Fidelity, etc. brokerage account and just eat the $8 commission to go ahead and buy CVSL shares. If it takes a few months to get an employee stock purchase program in place, CVSL could be trading at a much higher level by then.
Rave Restaurant Group’s stock continues to swoon in line with the other small cap restaurant stocks in its peer group. Across the board we have seen these stocks fall 20-25 percent from their recent highs, despite posting strong results and all indicators pointing to very strong growth in new stores and good year over year comps at existing locations. Yesterday Rave’s Pie Five division announced another significant development deal for new locations in Branson and Springfield Missouri, Tucson, Arizona and Albuquerque, New Mexico. Here is a link to the full press release (click here).
We continue to believe that fast casual pizza is going to be a big deal and eventually have a footprint very similar to the fast casual Tex-mex chains, which means there are many years of growth ahead for the players that execute well. We also think that there is room for at least two or three chains to stake out a claim in this space and early indications are that Pie Five is going to be one of the big winners. Short sellers have been targeting RAVE for a few months now and they appear to be having their way with the stock as the broader market forces have been working to their advantage. While this broader market and sector weakness may allow for some near term downside, we believe that patient investors who can buy shares when the shorts are pushing it lower (like this week) will benefit tremendously when the market storms pass.
Great article out yesterday (click here to read) by one of our own pointing out how ridiculous it is for CVSL stock to trade in its current range. One thing to note – the “ridiculous” .2x revenue multiple that was calculated in the article uses a pretty conservative approach because it does not include the revenue from recently acquired Kleeneze. If Kleeneze’s revenue from the prior 12 months were included, CVSL’s cash/debt adjusted market cap would have been .1x trailing twelve months revenue. So even with yesterday’s move off the bottom, CVSL remains dirt cheap and arguably still below .2x trailing revenue despite the fact that CVSL is growing much faster than the other companies in the space and despite the fact that it has a much stronger balance sheet than the comparables used, including enough cash to pay off its debt, repurchase the entire public float and still have $1 million in the bank.
Groove investors who have yet to “back up the truck” for the full portion of CVSL shares they want in their portfolio should do so ASAP. The CVSL article was published by Seeking Alpha in the morning after the email newsletters were distributed, so today will be the first day that many are exposed to the CVSL story for the first time. Thus, the article will be much more widely distributed today and other investors may be drawn into the CVSL story just by noticing that it was one of the top 5 gainers on the NYSE Market yesterday. Additionally, today starts the annual Bee convention for CVSL’s largest division (Longaberger) and with the company’s increasing focus on helping its sales reps become “owners” through share purchases may result in several thousand other buyers out there competing for shares. CVSL shares remain dirt cheap and we believe that the time to buy them is as soon as you can.
A big welcome to all of our new friends who are entrepreneurs working with Longaberger and/or attending the Bee today! The Groove is proud to be investing in the iconic Longaberger brand through our ownership of CVSL shares. We hope you have a great visit this week!
Thanks Groove community for keeping us on our toes. In our update yesterday we announced that we were adding CVSL to our focus list but the link we provided did not take readers to the completed due diligence report. Here is the excerpt from yesterday with the link to the due diligence report –
We believe we have found an opportunity (NYSE Mkt: CVSL) that can be a home run without even solving all of the issues that have driven it down this low ($1.09) and it could realistically be a 10 bagger over the next 4-5 years if former Mary Kay Cosmetics CEO John Rochon successfully executes his stated plan. CVSL traded at it’s all time low earlier today ($1.07) and is currently very close to being a pariah – shunned because of sub par operational performance at recently acquired companies, shunned because it is in the direct selling business, shunned because the CEO of its largest division was just fired and shunned due to negative perceptions in the investment community driven by inordinately negative articles about CVSL.
The negatives for CVSL the last 6-9 months have been overwhelming and the stock has fallen 90% as a result. The current valuation reflects a total company value (adjusted for cash/debt) of around $23 million. This is a company that we believe to be on a $160 million 12 month run rate and one who could easily exceed those numbers to the upside with just a little boost in momentum among the true drivers of value for this company – its widespread and diverse 50,000 rep strong sales force. While we believe issues that recent negative articles have focused on not without merit, we also believe that these issues are more than fully reflected in the company’s valuation. While it may be another quarter before we see its bellwether acquisition (Longaberger) turn the corner and start growing again, we think that when it becomes apparent that Longaberger is back on a growth trajectory it will drive the stock substantially higher allowing for a potential “home run” (400% return) from existing levels on just that turn. Click here for the full CVSL due diligence
While the Groove does not choose focus stocks whose primary listing is on a foreign exchange, we believe the opportunity presented by one of our own in a very well researched and presented article yesterday deserves a good look by Groove investors for a number of reasons not the least of which is what seems to be a very strong growth story and likelihood that there will soon be a Nasdaq uplisting. The Asymmetrical Tech Investor makes a very strong case for starting to build positions now for multiple reasons and we note that US investors are able to buy shares through the Pink Sheets listing symbol POETF. Read the full article here.
Inuvo announced last week it will be added to the Russell Microcap® Index when Russell Investments reconstitutes its comprehensive set of U.S. and global equity indexes on June 26, according to a preliminary list of additions posted June 12. Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies. This is a win for Inuvo management and shareholders, as it will get many more money managers and institutions familiar with Inuvo at a time when the company’s operations are growing and delivering strong results quarter after quarter.
Two months ago on April 17, we pointed out to Groove investors that the recent sell off in Inuvo shares had been way over done, as the stock had fallen from its high of $3.50 to just over $2 /share in a very short time following a negative article written by short sellers. In that piece we mentioned our expectation that the stock would soon re-test its $3.50 multi-year high and Inuvo shares did just that earlier this week touching a multi year high of $3.57 before pulling back to its to a trading range of $3.05-$3.30. This corresponds to a 50-70% return for all Groove investors who repurchased Inuvo shares after our update.
In our most recent update, we decided to remove Travelzoo from our focus list. We hope that Groovers were able to take advantage of the several days following that where the stock was still trading in the $13.25 – $13.43 range to reduce their holdings to the degree that they took their risk capital off the table and continued holding only the shares that represented “house money”. Since that time TZOO shares have traded down by over $2 per share and settling into a range between $10.80 and $11.75, approximately $1.50-$2.50 below the price it was trading at when we suggested Groove Investors take their profits off the table.
Replacing TZOO on the Focus List – CVSL
Since the removal of TZOO from our focus list, we have been surveying the landscape for stocks that better fit what we have traditionally sought to unearth for the Groove community – below the Wall Street radar micro cap opportunities that have enormous upside potential despite current issues causing them to be shunned, out of favor or in some cases, simply overlooked. We believe we have found an opportunity (NYSE Mkt: CVSL) that can be a home run without even solving all the issues that have driven it down this low ($1.09) and it could realistically be a 10 bagger over the next 4-5 years if former Mary Kay Cosmetics CEO John Rochon successfully executes his stated plan. CVSL traded at it’s all time low earlier today ($1.07) and is currently very close to being a pariah – shunned because of sub par operational performance at recently acquired companies, shunned because it is in the direct selling business, shunned because the CEO of its largest division was just fired and shunned due to negative perceptions in the investment community driven by inordinately negative articles about CVSL.
The negatives for CVSL the last 6-9 months have been overwhelming and the stock has fallen 90% as a result. The current valuation reflects a total company value (adjusted for cash/debt) of around $23 million. This is a company that we believe to be on a $160 million 12 month run rate and one who could easily exceed those numbers to the upside with just a little boost in momentum among the true drivers of value for this company – its widespread and diverse 50,000 rep strong sales force. While we believe issues that recent negative articles have focused on not without merit, we also believe that these issues are more than fully reflected in the company’s valuation. While it may be another quarter before we see its bellwether acquisition (Longaberger) turn the corner and start growing again, we think that when it becomes apparent that Longaberger is back on a growth trajectory it will drive the stock substantially higher allowing for a potential “home run” (400% return) from existing levels on just that turn. Click here for the full CVSL due diligence report.
We are removing Travelzoo from our recommended buy list and suggest that Groove members consider selling at least enough shares to cover their original cost. On February 3, 2015 we added Travelzoo to our recommended buy list when it was trading at $8.68. At today’s range of $13.25-$13.40, Groove participants can book a 50%+ gain in just over three months and we believe it makes sense to sell at least enough to cover your initial investment at this time.
While we still believe that Travelzoo has the potential to move exponentially higher if it makes the successful transition to focus on commission based agency hotel bookings, we are increasingly seeing evidence that TZOO management is finding it difficult to make the transition. Frankly, we do not understand why the company is moving so slowly, as our most recent checks indicate little to no growth in inventory or markets since the start of Q2 and we can not find evidence that Travelzoo is aggressively pursuing the rollout like we were expecting. In summary, we still believe there is tremendous value here and great potential, we are just not sure that this management team can make it happen and while we see tremendous upside in an acquisition scenario, management’s 50%+ share ownership makes such deals hinge completely on management’s desire to sell the company.
Great article out this week on Inuvo by one of our own and it appears from the trading action that it has either ignited a short squeeze or has caused some investors with substantial capital to take notice of the shareholder value being created at Inuvo. The article gives three very strong reasons for being bullish on Inuvo’s prospects –
1) Very bullish comments by typically conservative Inuvo CEO Rich Howe published in a letter to shareholders this morning –
“As of May 1, 2015 we had a growing and profitable company with an approximate market value of $54 million dollars. We believe we have plenty of room to grow and valuation multiples in our marketspace remain attractive. We are trading at about 1 times trailing twelve month sales in an industry that typically trades upwards of 2 or more times trailing twelve month sales.”
2) Large Open Market Stock Purchases Averaging UP for First Time by Inuvo BOD Chairman and largest shareholder Charles Morgan –
Chairman Morgan filed form 4’s over the weekend that indicated he had acquired another $130K worth of Inuvo stock. We believe any six figure purchase of stock by an insider is significant, but this one is particularly so because we believe that it is the first time since Mr. Morgan first bought into Inuvo that he is making a purchase of shares at a price that is higher than his existing basis – averaging up instead of averaging down. He has made similarly large open market purchases in the past, but most of them were at prices less than half the current trading price and each of those served to bring down the average cost of his holdings. This purchase was substantially higher than his overall basis in Inuvo stock and it was done at prices much higher than previous ones.
3) Acquisition of media/mobile/content giant AOL –
This week it was announced that AOL was being acquired by Verizon. While there are many facets to the AOL empire, the core growth engine is focused on mobile/media/content/advertising – much like Inuvo. While it is not really an apples to apples comparison and I do not believe anyone would suggest that Inuvo is comparable to AOL, the large premium paid for a company with similar lines of business often leads to investors to look around for other smaller players in the space that might be gobbled up at a nice premium. Given the valuation of Inuvo and its profitable and rapidly growing mobile advertising business, it would not be surprising to see one of the larger players in the space make a run at Inuvo. Given CEO Howe’s recent comments, it appears that any discussions would likely require such talks to start with prices in the $4 per share range.
The price has steadily moved higher and the trading volume has increased each of the last two days since the article was published, with a large spike in volume in trading late Thursday afternoon before the close. It appeared for much of the last two sessions that short sellers were actively seeking to thwart any advance in the stock. It will be interesting to see if Thursday’s strong move upwards on very high volume will bring more interest in Inuvo on Friday and if so, if it will ultimately lead to a retest of that $3.50 high from last month.