Sports Gaming Industry Up To Bat For Q3 Earnings

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Sports Gaming Industry Up To Bat For Q3 Earnings

 

Summary

  • We see tremendous upside in the sports gaming industry.
  • Score Media and Gaming is the purest play in the US sports gaming market.
  • We estimate upside for Boyd Gaming of up to $40 over the next 12-18 months.

 

Leading Off

Score Media and Gaming (OTC:TSCRF) ended August 31st, its first full quarter of New Jersey gaming, with their app the sports bet. The company achieved a new cue for revenue record of 6.4 million compared to 5.1 million last year, a 25% increase.

Although average monthly sessions only increased 6% the score social sports content reached 242 million users in the quarter a new record demonstrating year-over-year growth of 150%. Total video views of the sports the scores esports content achieved a new record of 85 million impressively posting year-over-year growth of 157%.

With with its partnership agreement with Penn national gaming (PENN) the company will be able to access and offer mobile sports betting to about 30% of the US population.

The company beat top-line estimates by 5% and matched EPS estimates for the quarter. 3 analyst follow Score Media and Gaming with an average price target of a dollar a share. (OTC:TSCRF) closed at $CAD0.57. The company represents the purest play on the US sports gaming market in public traded equities at this time.

score1

Data by YCharts

Other Notable EPS Reports

Boyd Gaming (BYD). also reported earnings meeting estimates and slightly missing on revenues the company achieved improvement in operating margins across their various segments.

Powered by recent acquisitions Boyd posted 34% revenue growth and 70% earnings growth and is expected to earn a dollar 97 and 2020 relative to its current market price of 27 spot 25 Boyd looks like a value. At 20x 2020 EPS estimated, we see upside to $40 in the next 12-18 months.

boyd gaming corp

Data by YCharts

 

Top Performers

Since May when we created our sports gaming index leaders are:(WIMHY) +42.78%(CHDN) + 40.49%(CZR) + 34.76%(PENN) + 16.22%

 

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Singular Research Director’s Letter: October performance 2019

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Singular Research’s October 2019 Director’s Letter

 

Amidst a prolonged trade war with China, slowing European economies, domestic signs of a recession, and overall positive third quarter results (80% of companies in the S&P 500 surprising net income to the upside), investors are faced with mixed signs.  To add to the confusion in the month of October, the Fed lowered the federal funds rate by 25 basis points to 1.75% and initiated a fourth quantitative easing program.  The October Purchasing Managers Index (PMI) registered 48.3 percent, an increase of 0.5 percentage points from the September reading of 47.8 percent.  The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.1 percent in October to 111.7 (2016 = 100), following a 0.2 percent decline in both September and August, and a 0.4 percent increase in July.  On a positive note, the unemployment rate remained stable at 3.6%, one of the lowest rates since December 1969.

 october monthly performance

 

For the month of October, the Singular coverage list outperformed the S&P 500 and Russell 2000 by 295 and 247 basis points, respectively.  Year-to-date, the Singular coverage list has outperformed the S&P 500 and the Russell 2000 by 1,206 and 1,688 basis points, respectively.  As the trade war with China continues and European markets falter, there appears to be an apparent shift to domestic small cap stocks that are not affected by international affairs.

 

october top 5 performers

ROKU, ANIK, and TRNS all performed well as investors were thrilled from continued growth stories.  Investors realized the September sell-off of ROKU was largely over-done and the stock price appreciated 45% for the month.  Transcat has continued to rebound as their recent acquisitions have increased revenue and bolstered margins.  ANIK, IRMD, and EHTH all added significant alpha for the month as investors cheered the growing global demand of their drugs and medical equipment.

 

october worst 5 performers

 

FSTR took the largest hit for the month of October, posting a 16% decline, as a slowdown in the U.S. agriculture market and European economies have lowered revenue expectations looking ahead.  HBIO was also lower due to lower quarterly revenue results (-4% YoY), but the company’s adjusted operating margin increased 90 basis points, signifying a potential turnaround story for 2020.  ALG’s quarter ending results were similar to that of FSTR’s, showing signs of a slowdown from the U.S. agriculture market and a decreasing backlog; however, the company recently acquired Morbark, a leading manufacturer of forestry and tree maintenance equipment that we believe will support revenue growth in 2020.

october new initaitiations

 

For October, we launched coverage on eHealth, Inc. (EHTH), the parent company of eHealth Insurance Services, Inc. the leading online source of health insurance for individuals, families, and small businesses.  We wish to thank our clients for their support and belief in our process.  For a complimentary report for new subscribers, to provide feedback, or to share some valued insights, please e-mail me using the link below.

 

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Waiting for Godot? Indicators Remain Mildly Bearish

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Waiting for Godot? Indicators Remain mildly bearish.

 

Bears point to recent lagging economic data, high equity valuations, and the greatly extended duration of the economic expansion. Bulls point to recent upbeat economic data, low relative equity valuations to bonds, and the strong historical track record of an incumbent presidential cycle.

Meanwhile our indicators remain bearish. However, a reversal and a bull market could potentially be just around the corner. Three important indicators are fractions away from turning bullish which would trigger an overall extremely positive reading. However, currently, our indicators remain bearish, much to our consternation. If another highly expected rate cut occurs, most of our indicators will turn bullish. Here is where we stand as of this writing.

 

article 10 15 2019 img 1

 

Market Sentiment: Bullish

The American Association of Individual Investors (AAII) sentiment index is showing one of the lowest bull-to-bear ratios in this elongated cycle at 0.54, with 21% bulls to 39% bears. The S&P 100 put to call ratio is 1.51 which also illustrates elevated bearishness in the future of the stock market. These indicators are contrarian, so a negative reading indicates a bullish outlook.

 

article 10 15 2019 img 2

 

Technical Indicators: Bearish

Our technical indicators often directionally lag our sentiment indicators. In the aggregate, our indicators are tilting negative from the September sell off. However, the sell-off appears well contained as seen in the somewhat balanced 10-day moving average, with 333 issues up on volume and 466 issues down on volume. On a positive note, the 10-day moving average had 80 new all-time highs and 45 new all-time lows.

While all major large cap indices are above their 200-day moving averages, small cap indices have been struggling below their 200-day moving averages over this same time period. Small cap stocks have posted negative returns on a trailing 12-month basis and have remained below their 200 day moving averages since July. As a result, small cap stocks could currently entering a bear market.

 

Liquidity Indicators: Neutral

The IPO mania of September has now passed, producing over $25 billion in new equity. The bulls are awaiting large stock buyback announcements combined with renewed M&A activity, fueled by an implosion of interest rates to facilitate low cost borrowing. In comparison, investment grade (BBB) corporate bonds yield 3.6% while the S&P 500 has an earnings yield of 6.0%.

While NYSE margin debt is high relative to credit balances and fund flows into mutual funds and ETFs are slightly negative, there is a large amount of cash in money market funds, over $ 3.4 trillion dollars. This amount represents more than 11% of the total equity market valuation.

 

Valuations: Positive

Due to a significant decline in interest rates, equities currently look significantly undervalued relative to bonds. Therefore, one could reason that a successful hedged trade could be long the S&P 500 index ETF (SPY) and short a U.S. Aggregate Bond ETF, (AGG).

Based on this disequilibrium, our model shows the S&P 500 ETF (SPY) at a fair value of 4,200, with a 39% upside. We come to this conclusion from a combination of a 10% EPS growth over the next 12 months, expanding multiples based on a 3.6% BBB bond yield, and a 23 times earnings multiplier for the S&P 500.

Meanwhile, small and micro-cap stocks trade at 20 and 30% discounts to the S&P 500. The unweighted Russell 2000 index also trades at a significant discount to the S&P 500, further strengthening the argument of investor preference of large cap over small cap stocks.

 

EPS Momentum: Negative

Third quarter earnings growth is expected to be (4.1)%, representing the worst result since Q1 2016 which also had the characteristics of a bear market environment. Like the 2015-2016 time period, current aggregate earnings have been declining for three consecutive quarters. Over 70% of Q3 earnings reports thus far have been revised lower.

However, Q4 earnings reports are expected to reverse and post a 1.3% increase. Estimates for 2020 earnings show an expectation of a 10.6% EPS growth rate.

 

Monetary Indicators: Neutral

With one more Fed rate cut, this indicator will turn decisively bullish. Our excess liquidity indicator shows that the Fed is providing plenty of liquidity for growth with the M2 money supply, adjusted for velocity, growing at 97 basis points above nominal GDP. This estimate is based on second quarter results.

As advertised, the yield curve is inverted but much less so as of this writing. And, a potential 25 basis point rate cut will likely lead to a positive sloping yield curve in the near future. Our forward rate analysis forecast has short-term rates decreasing by 28 basis points. Such a forecast remains viable because the current federal funds rate is high enough to support such a decrease. Fed funds futures forecasts a 70% probability of a rate cut.

 

article 10 15 2019 img 3

 

Conclusion

In summary, a 25 basis point rate cut is likely to drive our liquidity, monetary, and technical indicators to bullish levels. Until then, we hope the stock market is not like an elusive Godot and makes a decision, for better or worse.

 

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Robert Maltbie, CFA

Singular Research, President

 

Singular Research New Initiations Composite Up 40% in 2019

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Singular Research New Initiations Composite Up 40% in 2019

 

Our New Initiations 2019 composite average is up 40% through 9/13/19, outperforming the Renaissance Capital IPO, the Russell Micro-Cap, the Russell 2000, and the S&P 500 indices YTD performance. Our 2019 New Initiation’s composite constituents and their respective performance since their 2019 initiations are listed below. New subscribers will receive immediate access to all new upcoming initiations.

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article 10 7 2019 image 1

 

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Singular Research, President

 

December 2019 MMI Report

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A Bull is a Bull.

 December 2019 MMI Report

If it looks like a bull, acts like a bull, runs like a bull, then it is probably a bull market. Our indicators are registering at their highest, most bullish levels since 2009. A S&P 500 fair value of 4,000 in 2020 is supported by our comparative asset valuation analysis.

Fueled by three interest rate cuts, upward revisions in key economic data including GDP, significant progress in the trade war with China, a soft QE 4, a normalization of the yield curve, U.S. equities should trend significantly higher over the next 12 months.

mmi report 3

 

 

Our proprietary MMI Indicator scores a 69.5 out of 100, a very bullish score. This reading is the highest score we have seen for this decade.

mmi indicator

 Sentiment: Negative

Contrarian sentiment indicators have reversed and become more moderately positioned after a few weeks of upside in the markets.

The VIX is registering a reading of 12, reflecting an utter lack of fear. However, other indicators recently have moderated, becoming more fearful. The S&P 100 put-to-call ratio stands at 1.27 to 1 and the- bull-to-bear ratio stands at 0.90. Although slightly bearish, this reading is recently down from higher levels, showing a tempering of enthusiasm.

market sentiments

 

Technical Indicators: Bullish

New highs dominate new lows by nearly a five to one margin and all major U.S. equity market indices are above their 200-day moving averages, perhaps barely overextended by 5 to 7%. The 10-day moving average volume and breadth of the  advance / decline indicator for the NASDAQ and NYSE were 1.42 to 1 and 1.22 to 1, mildly bullish scores.  However, last week’s advance-decline volume and breadth for the NYSE and NASDAQ were negative. This result may indicate the market may be ripe for a brief sell-off which would provide an entry point for many playing catch up this year.

nyse

 

Liquidity Indicators:  Bullish

Capital inflows have surged to a positive $27 billion, led by mega-mergers like Tiffany's (TIF) and Moet Hennessy – Louis Vuitton (LVMH) and Novartis (NOV) and Medicines Co. (MDCO), both acquired in all-cash deals. Also, there is still plenty of cash on the sidelines as money market balances exceed 11% of the total market cap, with over $3.6 trillion, earning negative real returns.  Meanwhile, margin account debit balances have declined in 2019, showing a temperate approach to equities.

mmi dec month year

 

It is instructive to know that while cash inflows into equity funds are net neutral to outflows, flows into bond funds and have attracted over $22 billion in November. Investors are tiptoeing up the risk spectrum into bonds rather than equities.

Valuation Indicators: Bullish

Our indicators support an S&P fair value of over 4,000. This forecast is produced from a combination of 10% earnings growth estimated in 2020 and a 20% expansion of market P/E multiples. The S&P 500 earnings yield is still relatively cheap in relation to bond yields, the earnings yield is approximately 4.5% versus 3.4% on medium grade corporate bonds. Unless interest rates rise, using our equity earnings yield based on 2019 estimates, the equity market reaches a fair valuation at parity with the bond yield, adjusted for a 10% discount for risk over the next 12 months, producing a P/E ratio of 23 as a fair value. A cross reference using absolute value data measures shows the equity markets at a slight premium of about 11% to tangible business value per the most recent Z report from the Fed. At 1.45 times nominal GDP, U.S. equity markets are valued well below the peak of 2.2x reached in 2000. A PEG ratio analysis shows the market undervalued at 2.1x versus a historical average of 2.6 times. The Wall Street consensus targets the S&P at 3,387, up 9% from current levels.

Earnings Momentum Indicators: Neutral

This quarter will likely represent the third consecutive negative growth quarter for earnings. This outcome was last achieved in late 2015 through early 2016, another mini bear market period.

The tide may be turning to the upside as better-than-expected earnings reports have topped misses by a 3-to-1 ratio.  Also, 2020 earnings growth is expected to increase approximately 10%, supporting a S&P 500 aggregate estimate for earnings of $179. The street consensus target is obtained by applying an 18 P/E ratio to the 2020 S&P 500 EPS estimate.

Monetary Policy: Bullish

Our excess liquidity indicator is positive 134 basis points. This result shows the FED is in a similar mode for injecting more liquidity via monetary stimulus, adjusted for velocity versus the current GDP growth rate.

The yield curve term spread ratio is .9 to 1, comparing 1-year treasuries to 10-year treasuries, showing a renormalization of a positive yield curve.

mmi treasury yield curves dec

 

Our forward rates data is flat, meaning no further rate cuts are implied at this time.  Our high yield to treasury spread indicator is slightly bearish at a 339 basis point premium (400 bps is parity). This low premium is instructive, underscoring the flood of capital into bonds rather than equities.

Interestingly, the Leading Economic Indicators series (LEI) has been negative for three months in a row. The last time this occurred was during the mini bear market bottom of December 2015 through February 2016. This bear market was followed by a 40% run from 2016 to September 2018.

Currently, we believe the largest systemic risk to the market continues to be from the fear of a re-emergence of a U.S.-China trade war, the continuation of no economic growth, a possible recession in Europe, an ongoing political stalemate, or stalling stimulative economic policies in the U.S.


We wish you a happy holiday season. Santa may be arriving early this year!

 

Robert Maltbie, CFA
Singular Research, President
818-222-6234(office)
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Singular Research Director’s Letter: September performance 2019

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Singular Research’s September 2019 Director’s Letter

 

The equity markets rebounded from signs of a potential trade war deal. However, the mood remains cautious on Wall Street as there are still unnerving recessionary signs. The September Purchasing Managers Index (PMI) registered 47.8 percent, a decrease of 1.3 percentage points from the August reading of 49.1 percent. The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.1 percent in September to 111.9 (2016 = 100), following a 0.2 percent decline in August, and a 0.4 percent increase in July. On a positive note, the unemployment rate fell 0.2 percentage points to 3.5%, the lowest rate since December 1969.

 singular month sept1

 

For the month of September, the Singular coverage list outperformed the S&P 500 and Russell 2000 by 74 and 50 basis points, respectively. As recessionary fears continue, the general market trend appears to be shifting to value and away from growth-oriented stocks.

 

singular month sept2

 

ZEUS, GEOS, and NVEE all performed well as recessionary indicators have driven investors to safe-haven stocks, protected from any trade war backlash. HBIO announced a strategic action plan with target goals that investors have positively recognized.

singular month sept3

 

ROKU, RUBI, and LUNA all had great results for the second quarter. As a result, their stock prices showed great price appreciation in August. A negative research report on ROKU combined with fears of a slowing economy created a massive ROKU sell-off, sending the stock to a recent low of $99.74 (9/27). However, we believe this great price decline was unwarranted and re-iterated our BUY recommendation shortly thereafter. ROKU is now back to $131.22 (10/24). There has been a similar trend with RUBI and LUNA that we believe will reverse after their next earnings release.

 

singular month sept4

 

For September, we launched coverage on IRadimed Corporation, a maker of MRI compatible medical devices with growing demand for their innovative product. We wish to thank our clients for their support and belief in our process. For a complimentary report for new subscribers, to provide feedback, or to share some valued insights, please e-mail me using the link below.

Go to Singular Research for More Great Stock Ideas!

 

Thank You

Robert Maltbie, CFA
Singular Research, President
818-222-6234(office)
This email address is being protected from spambots. You need JavaScript enabled to view it.

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Undercovered Gems Headline the Singular Research Midwestern Values Conference in Chicago on 9/19

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Undercovered Gems Headline the Singular Research Midwestern Values Conference in Chicago on 9/19

 

At Singular Research, we focus on small and micro-cap stocks that are undercovered on Wall Street. These stocks have a niche business model and have yet to be widely discovered. Many of the global threats in the stock market today do not affect these stocks. Our small-cap investor conference in Chicago has thirteen public, emerging, and undercovered companies that exemplify our research and provide exciting alpha opportunities. Please see below for our conference schedule and a brief description on each company that is presenting.

schedule of presenting companies

 

BIOLASE Inc. (BIOL)

$4 Price Target, Buy-Long Term, Current Price: $0.98 (9/4/19)

Biolase (BIOL) is a world leader in the emerging market for dental lasers. To date, the Company has installed more than 33,000 dental lasers in over 90 countries. Compared to traditional dental instruments, lasers cause less trauma, pain and bleeding and improve patient outcomes. BIOL sells its dental lasers and related products direct in the US, Canada, Germany and India and through distributors in other countries. The Company is headquartered in Irvine, CA.

biolase

 

Emergent BioSolutions Inc. (EBS)

$70 Price Target, Buy-Long Term, Current Price: $56.0 (9/4/19)

Emergent BioSolutions (EBS) is a global specialty life sciences company that develops and commercializes vaccines, drugs and devices that address biodefense threats. The Company is a preferred provider of biodefense products and services to the U.S. government under multi-year contracts. Its most valuable product, BioThrax is the only FDA-approved anthrax vaccine. The Company’s products are sold mainly in the U.S. as well as internationally.

emergent

 

good natured Products (GDNP.V)

N/A Price Target, No Rating, Current Price: $0.15 (9/4/19)

Good Natured Products Inc., formerly Solegear, is an award-winning, publicly traded bioplastics company founded in 2006 and based in Vancouver, British Columbia, Canada. Good Natured is an innovator in the field of next generation bioplastics made from annually renewable plant-based sources.

good nature

 

Luna Innovations Inc. (LUNA)

$6.50 Price Target, Buy, Current Price: $6.39 (9/4/19)

Luna Innovations Inc. develops and markets fiber optic sensing and test and measurement products worldwide. The company has two operating segments. The products and licensing unit sells the company’s commercial fiber optic test and sensing equipment and the technology development segment performs contract R&D for U.S. government agencies.

luna

 

 

Alamo Group Inc. (ALG)

$128.0 Price Target, Buy, Current Price: $112.36 (9/4/19)

Alamo Group is a global leader in design and manufacture of high-quality agriculture equipment for farms and ranches and infrastructure maintenance equipment for government and industrial markets. The company has 26 manufacturing locations in the U.S., Canada, England, France, Australia, and Brazil.

alamo

 

 

Daktronics Inc. (DAKT)

Price Target Under Review, Buy-Long Term, Current Price: $7.15 (9/4/19)

Daktronics, Inc. is the world’s leading supplier of electronic scoreboards, large electronic display systems, and digital messaging solutions for use in sports, transportation, and communications.

drakonics

 

 

Seabridge Gold Inc. (SA)

$17.50 Price Target, Buy-Long Term, Current Price: $16.30 (9/4/19)

Seabridge Gold (SA) is a development stage company engaged in the acquisition and exploration of gold properties located in North America.

seabridge

 

 

QuinStreet Inc. (QNST)

$15.00 Price Target, Buy, Current Price: $11.37 (9/4/19)

QuinStreet Inc. specializes in performance marketing products and technologies. The company serves clients in high-value, high-consideration market verticals, including financial services, IT / technology, home services and education.

quinstreet

 

 

IEC Electronics Corp. (IEC)

$9.50 Price Target, Buy, Current Price: $6.94 (9/4/19)

IEC Electronics is a provider of electronic manufacturing services to advanced technology companies that produce lifesaving and mission critical products in the medical, industrial, aerospace, and defense sectors.

iec

 

 

Harvard Bioscience Inc. (HBIO)

$5.00 Price Target, Buy, Current Price: $2.40 (9/4/19)

Harvard Bioscience (HBIO) develops, manufactures and markets scientific equipment, systems and consumables that are used by thousands of researchers worldwide. The Company was founded in 1901 by a Harvard Medical School professor and has grown through a combination of new products and acquisitions. HBIO is headquartered in Holliston, Massachusetts and has sales and/or manufacturing operations in the US and Canada, the UK, Germany, Sweden France, Spain and China.

harvard

 

Acme United Corp. (ACU)

$23.50 Price Target, Buy, Current Price: $19.66 (9/4/19)

Acme United Corporation is one of the largest worldwide suppliers of innovative cutting devices, measuring instruments and safety products for the school, home, office and industrial markets. The company has facilities in the U.S., Canada, England, Germany, Hong Kong and China. Acme sells its products in countries. It had 421 employees at the end of 2017.

acme

 

 

Genprex Inc. (GNPX)

$5.50 Price Target, Buy, Current Price: $0.90 (9/4/19)

Genprex is a pharmaceutical development company with an innovative anti-tumor platform. Oncoprex is in Phase II clinical trials for the treatment of lung cancer. Additional indications for soft tissue cancers are likely candidates for clinical trials in the future.

genpex

 

 

EVIO Inc. (EVIO)

N/A Price Target, No Rating, Current Price: $0.60 (9/4/19)

EVIO Labs is the nation's leading provider of accredited analytical testing, scientific research and advisory services to the regulated cannabis industry. EVIO Labs provides statemandated ancillary services that are required to ensure the safety and quality of the nation's cannabis supply.

evio

 

To register for the webinar of our Chicago conference on September 19, please follow the link below.

https://register.gotowebinar.com/register/686113248883744525

 

For a complimentary research report on any of these companies mentioned, please e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. or call 818-222-6234.

Thank you.

 

Singular Research Q2:19 Earnings Season Review

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Singular Research Q2:19 Earnings Season Review

 

The second quarter of 2019 was just as wild as the first quarter with threats of trade war, falling interest rates, and global economic slowdown. At Singular Research, we focus on small and micro-cap stocks that are undercovered on Wall Street. These stocks have a niche business model and have yet to be widely discovered. Many of the global threats in the stock market today do not affect these stocks. Below, we show the individual EPS outcomes for our coverage, then discuss the top and worstperformers for the quarter, and finish with our hidden gem for the third quarter.

 

image 1 9 5 2019

 

Top Five Earnings Surprises

For Q2:19, the top five earnings surprises were Trecora Resources, Luna Innovations, Anika Therapeutics, L.B. Foster, and Roku. Of these five, Luna, Anika, and Roku beat expectations and had resulting extraordinary stock price appreciation. Below we discuss each of the five companies’ Q2 performance:

  • Trecora Resources had a 49% improvement in adjusted EBITDA YoY, resulting from cost cutting improvements and stronger profit margins. The company is on a path of solid operational reliability and cost cutting measures that appears to be working; however, investors have yet to be thrilled.
  • Luna Innovations had total revenues of $17.8 million for the three months ended June 30, 2019, up 80% compared to the three months ended June 30, 2018. Products and licensing revenues were $11.4 million for the three months ended June 30, 2019, up 155% compared to the three months ended June 30, 2018. With strong and growing demand for their fiber optics testing products, Luna Innovations continues to exceed expectations and owners of the stock have been rewarded.
  • Anika Therapuetics’ International Viscosupplement revenue increased 28% year-over-year for the quarter, primarily due to international CINGAL revenue growth of 125%. Anika announced they will be creating a pilot study for CINGAL in the U.S. which will start in early 2020.
  • L.B. Foster had net sales of $200.9 million, an increase of 16.2% over the prior year quarter. Gross profit was $37.1 million, an increase of 12.3% from the prior year quarter. New orders and backlog decreased by 12.4% and 9.5%, respectively, from the prior year quarter. Although L.B. Foster had an earnings surprise of 73%, investors have not been enthusiastic as the stock price has decreased seven percent since their earnings release. We believe this selloff may have provided a good buying opportunity. Singular Research believes L.B. Foster has an upside of 54% as of August 30, 2019.
  • Roku had total net revenue of $250.1 million, up 59% YoY; Platform revenue of $167.7 million, up 86% YoY; Active Accounts of 30.5 million, a net addition of 1.4 million from last quarter; Streaming Hours increased 0.5 billion hours vs. Q1 to 9.4 billion, up 72% YoY; Average Revenue Per User (ARPU) of $21.06 (TTM), up $2.00 vs. Q1 2019. Roku has been on fire for us as the company continues to exceed growth expectations. We initiated coverage on Roku at $40.44 on January 23, 2019.Q2:19 revenues were $37.9 million, up 32% from Q2:18, on account of stabilization in CPM trends, greater-than-expected strength in audio and video, and favorable year-over-year take-rate comparables.

 

Bottom Three Disappointments

At the end of Q2:19, our worst three performers were Salem Media Group, REX American Resources, and the JMP Group. All three of these companies had EPS that did not meet expectations; however, investors have not punished their stock. A description of their quarter results is as follows:

  • Salem Media’s total revenue decreased 2.4% to $64.7 million from $66.3 million; Total operating expenses decreased 9.0% to $59.1 million from $64.9 million; Operating income increased to $5.6 million from $1.3 million; The company’s net loss increased to $3.6 million, or $0.14 net loss per share compared to $2.2 million, or $0.08 net loss per share; EBITDA increased 59.9% to $9.6 million from $6.0 million. The company had $7.8 million of positive cash flow from operating activities. At $1.46 per share (on 8/30/2019), we believe there may be room for huge upside potential. This stock is one of our top contrarian plays.
  • REX’s Q2:19 net sales and revenue were $105.9 million compared with $128.8 million in Q2:18. While ethanol and corn oil pricing remained stable on a year-to-year basis, lower Q2:19 ethanol production and lower distiller grain pricing led to the decline in year-over-year net sales and revenue. Primarily reflecting these factors and higher corn prices, the Company’s Q2:19 gross profit for its ethanol and by-products segment was $6.2 million, compared with $13.7 million in Q2:18. The company is sitting on $212 million of cash that we believe should be enough to help REX weather the storm. Once the trade wars with China subside, REX should have plenty of catalysts to the upside. We believe this stock to be another top contrarian play.
  • The JMP Group had net income of (0.05) per share compared to net income of (0.09) per share in the year ago period. We remain cautiously optimistic that the JMP Group can positively turn performance around in the second half of the year.

 

Singular Research’s Hidden Gem

The Rubicon Project (RUBI), Price Target: $12.00, EPS Beat: 54%, Upside: 17% (as of 8/30/19)

RUBI provides a technology solution to automate the purchase and sale of digital advertising inventory. Sellers (which include websites or mobile apps) provide digital advertising inventory to RUBI’s platform in the form of advertising requests. These ad requests from sellers are sent to buyers, which can then place bids on them. The company co-created Prebid which is an open-source platform that links multiple ad exchanges that were once fragmented. As more and more users adopt RUBI’s Demand Manager (software that simplifies the use of Prebid), RUBI should benefit immensely.

Second quarter highlights:

  • Q2:19 revenues were $37.9 million, up 32% from Q2:18, on account of stabilization in CPM trends, greater-than-expected strength in audio and video, and favorable year-over-year take-rate comparables.
  • Mobile and desktop revenues grew 42% and ~21% YOY to ~$21.2 million and $16.5 million, respectively. These segments represent ~56% and ~44% of overall sales.
  • Adjusted EBITDA was $4.4 million in Q2:19 vs. a loss of ~$5.4 million in Q2:18, driven by higher revenues and lower operating expenses.
  • Net loss was $2.2 million in Q2:19 versus a loss of $13.3 million in Q2:18. Adjusted EPS in Q2:19 was $(0.06) compared to $(0.27) reported in Q2:18.
  • Management now expects sales growth to be well above its long-term guidance of ~20% growth.

 

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