Groove Community Update – Inuvo, Remark and Rave
1) Inuvo – Inuvo reported a strong Q4 last week with top line results outpacing expectations and the company reporting a 36% increase over Q4 in the prior year and a 42% increase for the full year 2015 vs. 2014. The GAAP eanings of 3 cents per share for Q4 was in line with analyst’s expectations and the company reported full year GAAP earnings of 10 cents per share, up over last year’s 9 cents per share. In the several trading days since this very positive earnings report was released, Inuvo’s stock has fallen 16%, from $2.50 down to today’s closing price of $2.10. While the overall market action seems to be dictating the trading direction for most stocks over the last few weeks, we believe that the downward pressure in Inuvo shares reflects investor impatience rather than some concern about the quality of the earnings. Inuvo used its bountiful cash flow to pay off the entire remaining bank debt. Also the company reported revenue of $6.5 million for the month of January 2016, a significant uptick over January 2015’s revenue and we believe that this growth suggests that the company’s push for greater adoption of its Sitelinks offering is taking off. Additionally, there is talk of significant wins in bringing 0n new high traffic publishers that are likely driving these gains. While the company has competitive reasons for not announcing these new deals, investors should not overlook the obvious long term implications of this growth in terms of margin and valuation expansion. We think Zack’s analyst Lisa Thompson’s note on the quarter makes a strong case with her $4.25 price target that expands to $8.50+ if Sitelinks starts to gain significant traction. Inuvo’s sitelinks appears to be gaining traction and regardless to what degree that proves out, Inuvo is dirt cheap at $2.10. We will be surprised if we do not see buyers emerge (including insider activity) with Inuvo trading this low.
2) Remark Media – there was been very little to report on since our meeting with management two months ago at the LD Micro conference. We are still awaiting the first earnings report that will include Vegas.com results and we continue to believe that this aspect of the company’s report will determine the direction of MARK shares. Of course, in the near term nearly all stocks are being negatively impacted by the broader market melt down and Remark is no exception, with the stock actually breaching the previously solid $4 floor today that had been in place since days leading up to the announcement of the Vegas.com acqusition. Potential catalysts (beyond a good Vegas.com report) include some movement on the Sharecare position (like the sale of some or all of the stake, IPO announcement or some liquidity event that brings the value of Remark’s 5.2% stake in Sharecare more clearly into focus) or some news on Kan Kan that helps investors to better ascertain the potential for value creation there. We have more urgency to watch Remark when it trades down below $4 as that could prove to be very cheap very soon if positive events unfold with Vegas.com, Sharecare or Kan Kan.
3) Rave Restaurant Group – Rave continues to impress us with its operational performance and the stock continues to be a disappointment as the broader market sell off takes its toll and the restaurant stocks continue to take the full brunt. We expect the company to report Q2 earnings over the next few days and while we do expect to see enormous year over year growth in Pie Five system sales, we expect to continue to see a challenging environment for Same Store Sales, as the SSS base is still almost entirely in Texas markets. We believe that those markets will continue to face disproportionately difficult consumer trends due to the impact of declining oil prices on employment and consumer confidence in those areas. RAVE is a very very good buy in the low $5’s (where it traded today) for long term investors who can look 12-18 months out, see past the stock market volatility and appreciate the value that is being created by the Pie Five rollout. A proper assessment of the value of one of the fastest growing players in the fast casual pizza space puts RAVE substantially higher than where it is trading today.
4) CVSL – we are working on a more in depth update for CVSL given all that is going on there. Stay tuned.
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