Groove Community Update – CVSL, RAVE, MARK, INUV

September 8, 2015 at 10:16 am 2 comments

As indications of a slowing Chinese economy and falling stock market continue to reverberate worldwide, we believe that investors should prepare for significantly increased volatility over the weeks ahead. As investors get whip sawed by the day-to-day fluctuations, many are looking for respite and asking the question – do we sell our stock holdings, hold what we have and try to ride it out or buy more stock as most companies’ shares continue to get cheaper. Not surprisingly, we have received multiple inquiries from Groove participants wanting to know what to do regarding our four focus stocks – Remark Media, Inuvo, Rave and CVSL.

First and foremost, we believe that the market weakness reflects concern that a slowing economy in China will cause a slowdown worldwide, pushing Europe and US economies into much slower growth or even stagnation modes. Whether this will actually occur remains to be seen, but the perception of this result will drive share prices in the near term and we think the impact will be great enough to warrant Groove participants taking action.

CVSL

We have one company that we believe actually stands to benefit in the economic slowdown scenario. CVSL’s direct sales model typically experiences an uptick in sales during economic downturns due to growth in sales representatives that occurs as more consumers seek alternative sources of income. Combine CVSL’s propensity to grow as the economy falters with its recent quarterly report that gave strong evidence that the company’s operations have turned a corner that places the company on much more solid footing than it was back in the first quarter when the stock was trading north of $5 and you begin to understand why we think CVSL shares can and will continue to increase in value in the face of the same economic uncertainties that may cause a pullback in the broader market. Additionally, we note that the company could start to buy back its own shares very soon if it hasn’t already (by our estimation they could have started Friday) and one of CVSL’s largest divisions (Agel) will be rolling out a blockbuster new product at its worldwide conference in France next week. We believe these factors will cause CVSL shares to trade higher as the CVSL story gets more attention and the clear disconnect between the company’s operational/financial turnaround and the its lagging stock price becomes evident.

The bottom line is we believe Groove participants should consider taking gains in other holdings off the table and putting that money to work buying more CVSL shares, as we believe the opportunity to buy shares below $2 will soon be gone.

Rave Restaurant Group
We remain very bullish on Rave’s operations and note that the company’s 7th Chicago area location will open this week along with the second franchised location in Indiana, jut one week after the company opened its first new company owned store in the Atlanta market. We think the rollout of Pie 5’s in Atlanta will be similar to Chicago in that there will be a significant number of units operating in a fairly short period of time. Rave management continues to impress with their rollout of Pie5 franchise and company owned stores, which appears to be accelerating. While we would not be surprised to see more downside when the US markets swoon (did anyone else see that $8.80 best bid for RAVE at one point last Monday morning???), we think sanity will return within days and that those who buy on those sell offs will be rewarded for their patience. We note that the company should report their fourth quarter results (for the year ended June 30, 2015) sometime over the next few weeks and we would not be surprised to see some downward pressure after the report absent blowout numbers given the volatility we are seeing in the broader market and in particular the restaurant stocks. This would be a great opportunity for Groove investors who may have missed our initial call to buy shares to start building a position, because we think any sell off will be short-lived. Rave operates in a niche (fresh casual pizza) that we think is going to be huge over the next 4-5 years and we believe that the company is executing its rollout plan very well. We note that the top and bottom line impact of the new company owned locations will start to make a significant impact on the financials beginning this month, (which is the third month of the first quarter 2016 for Rave’s fiscal year) and then have a huge impact on the second quarter that starts in October. Rave remains a great long-term buy irrespective of short-term market fluctuations and we see it as a $20+ stock within the next 12-18 months. Groove participants with a long-term investment horizon should hold on to any shares of RAVE they own and consider buying more on any weakness.

Inuvo
Inuvo shares have pulled back from higher levels that we think were justified based on the company’s operations and earnings and last week saw significant insider buying when the stock dipped below $2.50. Just under $120,000 of stock purchased over a two-day period has to be viewed as a bullish indicator and investors appear to agree as the shares rallied 6% during last Friday’s sell off. Hopefully the additional Form 4 filed Friday will allow for some carryover momentum this week. Watch closely though, as we are concerned that additional evidence of a slowing economy could hit Inuvo shares and additional broader market declines could impact Inuvo shares as well. As such, we think Groovers would do well to take the opportunity in the $2.70-$3 range (we closed at $2.74 Friday) to take any Inuvo investment beyond those shares representing “house money” to be used as a source of funds to buy more CVSL or RAVE shares.

Remark
Remark Media shares have held up well following their announcement of the Vegas.com acquisition. We believe that the investment bankers working with Remark on this deal and others soon to be announced are supporting the stock in the current $4-$4.50 range and we would be surprised to see it trade below $4 due to that support. Should that support wane, we would expect the stock to trade lower and we see limited upside for the shares until more is known about the revenue and income producing capabilities of the acquired assets. Additionally, we expect to see other acquisitions that may further dilute the stake of existing Remark shareholders. As such, we would take the opportunity to sell Remark at today’s $4.50+ range and pare down that position back to “house money”, using MARK as a source of funds to buy CVSL or RAVE shares.

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2 Comments Add your own

  • 1. Kareem Fikri  |  September 8, 2015 at 11:02 am

    I am shocked you sold INUV. This thing is going to run to $10.00. Searchlinks is going to be huge. I agree about CVSL. But you are going to miss a huge run up in INUV.

    Kareem M. Fikri President – Fik Investment Corp 2001 Midwest Road, Suite 209 Oak Brook, IL 60523 773-209-8385 c 773-496-0414 f Kareem@fikrealty.com

    >

    Reply
    • 2. jwbuffett  |  September 21, 2015 at 11:19 am

      We did not suggest that Groove members sell all Inuvo, just those shares beyond “house money” – the “free” shares that represent gains beyond the amount of the initial investment. For most Groove investors holding the original positions they bought when we suggested a buy, that would mean selling half of their position or the case of those who bought every time we said buy – maybe a little less than half. We believe that is prudent at this time due to economic headwinds and also concerns about iOS 9’s ad blocking capabilities that could be a hindrance to mobile ad revenue growth for many players in the space. We still believe Inuvo is a good holding as it is a very well run company and we are just being cautious by suggesting that todays $3 range may be a good time to take some profits. Thanks for your comments Kareem and for FiK Investment Corp’s being a part of the Groove community!

      Reply

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