CVSL Update – 14% of Float Acquired & Meeting With Management Today
As of the open on January 21, Groove participants now control approximately 1.65 million shares or approximately 14% of the public float. A significant percentage of these shares were acquired over the last 30-40 days as CVSL shares have been hit very hard by selling that seems to be at odds with we believe to be an increasingly positive outlook for the company’s operations.
We note that CVSL’s stock has always been very volatile and this was particularly true around this time last year when it was also much more illiquid. At the time CVSL had serious cash flow issues, leadership issues at two of its largest divisions, declining sales at two of its largest divisions and was in the unfortunate position of needing to raise capital to close a transformative acquisition (Kleeneze). During that “perfect storm” CVSL stock traded mostly between $6 and $8 per share with peaks and valleys of $10 and $5.65. Now CVSL is trading at $1.04 and the following is true –
1) CVSL now has a strong balance sheet with enough cash to buy the entire public float at a 20%+ premium to yesterday’s closing price
2) We believe CVSL is on a revenue run rate that could be in the $190-$200m range for 2016 vs. what was an $80m run rate one year ago.
3) CVSL was able to close the Kleeneze acquisition and has since made a second acqusitions of a very similar (in size, geography and long standing tradition) company that should allow for tremendous synergy and expanded profitability for the combined companies.
3) the “leadership issues” of early 2015 have been resolved with new leadership in place at both companies that were experiencing such problems
4) we believe each of those divisions will show sequential improvements in revenue, ebitda and growth in sales reps, giving strong evidence that the new leadership is making a very positive difference and management’s turnaround plan is working.
5) We believe the company’s YIAH division will continue to show remarkable growth, making CVSL’s highest margin division not only its fastest growing but soon to be top 3 among revenue producing divisions at CVSL. The growth rate at YIAH make it among the fastest growing direct sales companies worldwide.
6) We believe that the company will outperform anaysts top line estimates that average just over $49 million in revenue for Q4. Thus, analysts are predicting almost 50% YOY revenue growth and 34% sequential growth, but we believe they will top even those numbers and show dramatic bottom line improvement that will make it obvious that the company is on track to reach profitability in 2016.
7) In addition to the significantly stronger financial and operational outlook for CVSL, the economic conditions are increasingly improving worldwide for direct sales businesses. As economies in Europe and the US start to slow down, there is always an increasing number of independent consultants for their direct sales businesses.
In summary, in the course of one year CVSL has gone from a $6-$8 stock with very serious financial and leadership issues to a $1 stock with extreme financial flexibility and each of the issues demonstrably resolved. Additionally, current economic conditions are increasingly conducive to growth for direct sales companies, as slowing economies in the US and Europe have historically resulted in significant growth in the number of people signing on as independent sales consultants and this fact plus anecdotal evidence leads us to believe that we will increasingly see this in CVSL’s numbers. We have noted previously the discovery of a very large naked short position in CVSL shares and we believe that remains outstanding. This is potentially a huge positive for CVSL investors at current levels, as buying to cover even a small percentage of that many shares would push CVSL much higher very quickly. And last but not least, one of the Groove community’s more active participants in the CVSL trade will be meeting with management in Dallas later today, someone who (like the rest of us) is heavily vested in the performance of CVSL’s stock and would like to see the company take several specific steps to enhance shareholder value.