Author: Tom Shaughnessy
SecretCaps
The Alpha In Microcap Investing
The fact of the matter is that microcap companies can take several quarters or years to come into fruition, thus continued analysis is a requirement. Investors must constantly revisit and review their thesis’ on what they own and why they own it.
If I told you to go out screening and find me the best microcap idea each day, diminishing returns would set in and by the end of the week you would be returning a sub-par idea. Point in case, there is no reason to lower your quality standards through a shot-gun approach. A shotgun approach to investing diversification does insulate an investor from risk, but also breeds a sense of ignorance. This ignorance is that each investment is such a small portion of your portfolio that it isn’t worth the time to conduct the proper due diligence. But remember, a portfolio is made up of any numbers of companies, and if this approach is applied an investor literally has not done the proper due diligence on their aggregate portfolio.
There is no need to invest in more companies than you can conduct reasonable due diligence on. An investor only needs one or two companies in their portfolio to materialize to have a huge impact on their investment goals, and life. Through continued analysis, an investor understands what is affecting their company, and how they should reasonably react. If a company shoots down on an overreaction, and investor can identify this as a potential buying opportunity, where an overly diversified investor or trader may cut their losses without the proper investigation.
This is why I lead my investing activities with an adage I formed, “It’s better to know what you own, than to buy what you don’t”, as there is nothing worse than seeing a microcap you sold grow substantially while the one you sold it for fails.
Our quick and intuitive continued analysis is a members only feature, and will be released for each company when events warrant an update. At SecretCaps we achieve strong continued analysis for our members through pertinent status updates, analysis blog posts, trade alerts and recorded management interviews.
Examples Of Comprehensive Research
(Example 1):
SilverSun Technologies (SSNT) is an under the radar $20M microcap company with an impressive growth story. Headquartered in Livingston, New Jersey, SilverSun is a technology solution provider to small businesses offering a wide array of solutions ranging from electronic data interchange (EDI) software to enterprise resource planning (ERP) software.
SilverSun’s growth has been impressive. Revenue in 2013 was up 32% and up 21% in the 1Q of 2014. Overall, revenue has increased 130% over the past four years. With a range of solutions and an accretive strategy to consolidate the market of Sage resellers, we believe this growth trend will continue. The company’s success has not been recognized by the market as SilverSun is valued far below its peers. This valuation disparity adds to SilverSun being an attractive investment opportunity prior to it being discovered.
With a high level of insider ownership, management’s interests are aligned perfectly with shareholders. SilverSun’s key growth drivers range from the acquisition of accretive Sage resellers to the new ability to compete with industry giants such as SAP (SAP) and Oracle (ORCL) for bigger deals. The company is also targeting to move the mass amount of business documents between companies from the physical to the digital world with its MAPADOC EDI solution. With a conservative 30% revenue growth target Q/Q moving forward, SilverSun offers long term investors a very attractive investment opportunity.
Overall, we are up considerably from our addition to SSNT at $0.06 and $0.18 as shares currently stand at $0.30. Our 20 page comprehensive report and CEO interview came before the company reported its best results in its 12 year history, with net income rising 350% in the first nine month of this year.
Example 2:
Direct Insite (DIRI) is a $6.5M microcap company we added to our portfolio earlier this week. With no direct competitor, the company's solutions are used by industry giants.
With a massive total addressable market, uptake of DIRI's cloud-based e-invoicing solutions could send shares to $1-$2 from $0.50. Direct Insite's solutions are already utilized by a large expanse of global companies. Further, the company’s key offering, PAYBOX for Banks and Corporates is targeting an underserved $2.9B segment of the receivables market, and offers numerous benefits which will drive growth.
Interestingly, the company only needs aa 2%-4% share of the target market, to see $25M to $50M in revenue annually and sport large upside potential. Adding to the investment thesis, DIRI has a sticky recurring revenue base amounting to 76% of revenue, large insider ownership, is debt-free, has $3M in cash and has a $27M NOL to shield against future taxes.
In closing, DIRI is unknown to both Main St and institutions and there are no articles detailing the company.
With a cost basis of near $0.50, DIRI currently stands at $0.80. Our report came before the company reported earnings, which included the signing of a global bank to their program - in line with our thesis, and the company’s plans to roll out their new offering. Our recorded CEO interview can be found here, and original report here.
Example 3:
Asure Software (ASUR) is a cloud-based workforce management software solutions provider based in Austin, TX. Founded in 1985, Asure is a $30M microcap company with an impressive growth story. The company is profiting by saving businesses time and money. This is accomplished by streamlining workforces and workspaces into highly productive engines.
With thousands of clients and a global footprint, Asure is an established company, not a typical overvalued technology company based upon promises. Further, Asure has aligned itself with three major market trends to bolster growth - globalization, mobilization and technology.
With a conservative revenue growth rate, Asure has the potential to reach $35-$40M in revenue and an EPS of $0.70 to $0.74 in EPS for FY15. This equates to 150% to 200% upside potential with an industry average 20x P/E ratio. To date, Asure is up 11% so far, and we have a cost basis of $5.19. Members can access our full 20-page report on the company, and our recorded interview with Asure’s CEO Pat Goepel here.
About SecretCaps:
SecretCaps is a comprehensive microcap investing community featuring detailed reports, recorded CEO interviews and real time trade alerts on undiscovered microcaps.
These companies are found before they make their moves and are discovered by institutions and other retail investors. SecretCaps.com maintains a sustained investment approach to allow for these microcap companies to come into fruition which includes update articles and continued analysis.
Disclosure:
By viewing this post you agree to SecretCaps’ full disclosure. All the above content and information is strictly informational, is not investment advice, and is in the authors personal opinion. Always contact a financial professional before executing any trades.
All information is strictly educational. SecretCaps is not affiliated with, or being compensated by PokerCollectif.com or its affiliates.
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