Groove Portfolio Update – RAVE, INUV, MARK & CVSL
Quite a bit going on with our focus stocks this week, so we pushed out an update to be sure the Groove community is aware of all that is going on –
With the stock price increase and significantly higher daily volume traded the last few weeks, we can surmise that the word is finally starting to get out about CVSL. In our last update we mentioned that we were expecting CVSL to test the $3 level and we saw that happen yesterday though we finally saw some consolidation later in the day and CVSL closed down for the day at $2.53. We are gratified to see CVSL finally getting some attention from investors. But even with the recent gains the stock is still trading at a valuation discount to its peers in the direct sales space, where most of the major exchange listed companies trade in the range of 1x revenue. By this measure, CVSL at its current run rate remains undervalued by at least 30%. Yesterday’s consolidation on volume that was more than 10x the normal daily trading volume suggests we are entering a stage where we will likely see more volatility and our expectation in that regard is heightened by the short interest report that came out after the close last night. The short interest for CVSL has ballooned to a level (240,000) that is within 1% the all time record high short interest for CVSL, which occurred in the days following the firing of Longaberger’s CEO. We believe the current (as of today) short interest is significantly higher than what shows in yesterday’s report, as that number was measured on September 15 and we believe that the shorting has picked up tremendously since that time and that the short interest as of today will is substantially higher than it has ever been in CVSL’s history. The confluence of this higher level of short interest with what is obviously a much greater following of CVSL by investors/traders should make for interesting trading over the next few weeks as CVSL winds down what we expect to be a very strong quarter operationally, news about sales results from Agel’s Caspi Gold launch starts to trickle in and the likelihood of the company making open market purchases of its stock increases as we approach the start of Q4 next week. These factors could push the stock up to test the $3 level again in the near term, but regardless of the timing of that retest we are confident that over the long-term CVSL will trade back to a level that more accurately (much higher than $3) reflects the potential for this model as the company’s operating results increasingly show that CVSL should actually trade at a premium to the other companies in the space instead of the current large discount.
Rave Restaurant Group –
Rave reported Q4 and full year earnings before Thursday’s open, with revenues of $13.9 million, an increase of 26.7% YOY and finished with a loss of.6. million outpacing the lone analyst’s estimates on the top and bottom lines. Several notable items from the release –
-Pie Five comparable store retail sales increased 6.7% from the same period of the prior year.
-Pie Five system-wide total retail sales increased 168%, and average weekly sales increased 11.1%, year over year.
-Pizza Inn domestic comparable store retail sales increased 0.2% from the same period of the prior year
We note that this report was for the period ending on June 30, and most of the new corporate stores were opened after June 30, so the big impact of these new stores will be seen for the first time on the next quarterly report. Most of the new stores in the corporate markets of Chicago, Houston and Atlanta area stores were not open prior to June 30, so we expect to see a significant revenue ramp in the current quarter and this should continue for the forseeable future. We remain very bullish on Rave Restaurant Group and note that it is a great example of a stock that is disconnected from the company’s fundamentals, as it has pulled back significantly from its highs for the year despite increasing evidence that the model is working and the company is executing its growth plan very well. While the downward pressure on its share price could continue due to broader market weakness, we note that the company is financially and operationally in great shape with the Pie 5 growth machine hitting on all cylinders and the Pizza Inn ops stabilizing. As such, we view Rave as being undervalued in the 9.25 range where it is currently trading.
Inuvo has continued to show strength in the face of the broader market weakness. The raised targets and estimates by Zacks and additional exposure from various financial media outlets has helped to keep Inuvo shares top of mind among small cap mobile advertising stocks. Here is a good mention from earlier this week at Benzinga – http://www.benzinga.com/trading-ideas/15/09/5858420/top-4-small-cap-stocks-in-the-marketing-services-industry-with-the-highe
Remark Media –
Remark Media shares have been range bound between $4.10 and $4.50 since the announcement of an agreement to acquire Vegas.com. After the market closed yesterday, the company announced that it intended to close the Vegas.com deal today – http://finance.yahoo.com/news/remark-media-plans-close-acquisition-021900659.html
Entry filed under: small cap stocks. Tags: Agel, benzinga, Caspi, caspi gold, CVSL, direct sales stocks, fast casual pizza, INUV, Kleeneze, Longaberger, mark, MLM Stocks, mobile advertising, RAVE, short squeeze, small cap stocks.