First some stats:
- fully reporting on NASDAQ
- founded in 1961
- market cap $4.4M
- share price $2.40 ish
- 1.8M shares common
- no warrants or preferred
- no debt
- $1.4M cash + $0.5M securities
- BV $4.2M
- TTM rev $2.2M
- TTM EPS -$1.50
Some may ask why own a company priced at fair value. What would Benjamin Graham say! It's all about the past and the future, the potential and the gamble, so current numbers fair value is too narrow a focus.
Tiny companies often survive. They go through highs and lows. Products come and go with some big hits and some losers. Markets change as does perception, the political landscape, world needs and desires. Given enough time all companies have periods where bankruptcy seems just around the corner. Even a company that goes out of business may have survived similar scares in the past.
Stock prices follow these gyrations and my question to you is how can we catch them? I think there are a few things we can do:
- The largest movements will be in the least liquid and lowest absolute priced stocks so fish in that pond. It takes a lot less to move a penny stock than something at $50.
- Buy when the future is dim. When earnings are solid and stable the stock has already moved.
- Buy when the stock is in a low range or at a low support level.
- Sell into the good news and get ready to buy back when it falls.
- Buy into situations where survival is most likely. Low debt, stable or growing industry, cash in the bank, assets to sell, new products on the way, management taking action.
- Realize there will be losses. The goal is to be right sometimes and win big, but there will be times when the company cannot pull through.
Back to TCCO. From the most recent 10k:
Technical Communications Corporation was organized in 1961 as a Massachusetts corporation to engage primarily in consulting activities. Since the late 1960s, the business has consisted entirely of the design, development, manufacture, distribution, marketing and sale of communications security devices, systems and services. The secure communications solutions provided by TCC protect vital information transmitted over a wide range of data, video, fax and voice networks. TCC’s products have been sold into over 115 countries to governments, military agencies, telecommunications carriers, financial institutions and multinational corporations. The Company’s business consists of one industry segment, which is the design, development, manufacture, distribution, marketing and sale of communications security devices, systems and services.
The Company’s products consist of sophisticated electronic devices that enable users to transmit information in an encrypted format and permit recipients to reconstitute the information in a deciphered format if the recipient possesses the right decryption “key”. The Company’s products can be used to protect confidentiality in communications between radios, telephones, mobile phones, facsimile machines and data network equipment over wires, fiber optic cables, radio waves, and microwave and satellite links. The principal markets for the Company’s products are foreign and domestic governmental agencies, law enforcement and military agencies, financial institutions, and multinational companies requiring protection of mission-critical information.
Check out the long term chart below. What I see is we are in a low range and the stock has been forming a base around $2.50 over the past year. There is long term support in the $3 area that held up in 1984, 1987, 1999, 2006, 2009. Only once in the past 30 years has the stock been below current levels, from 2001-2003. A lot of money would have been made buying around current levels and selling into the huge spikes.
Let's go back in time.
It's Aug 2002 and the stock looks like this:
The stock is at an all time low and management has this to say in the 10QSB:
The recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the company's ability to increase sales, to succeed in its future operations and to obtain new financing with a lender.
If business continues at the same level and we do not secure a new credit facility or no further actions are taken, the Company could run out of cash in early fiscal 2003.
The decrease in general and administrative costs were attributable to a $42,000 decrease in personnel related costs associated with a reduced headcount and overall cost reductions of approximately $184,000 associated with a restructuring program.A month later the company was delisted from the NASDAQ and here's what could be found in 10KSB (emphasis mine):
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the company as a going concern. However, the Company has sustained substantial losses aggregating $8,574,000 in the last four fiscal years. In addition, the Company has used, rather than provided, cash in its operations.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the company with the ability to continue in existence: a significant cost cutting program, which has reduced headcount and operating expenses substantially during the past fiscal year, vigorously negotiating additional sales contracts with new and existing customers and the development of new products focused on international market expansion and emerging markets
Management believes the steps taken will be sufficient for the Company to continue in existence, however there can be no assurances these activities will be successfulWould you stick around? If you did then you saw the stock rise up 22x from $0.30 to $7 in a year and a half. It was stable above $5 for several months.
It's Dec 2006 and the stock looks like this:
The stock has been stagnant for over a year and we get the following in the 10KSB:
Given these initiatives and our expectations at the beginning of the year our results during the 2006 fiscal year were disappointing. Having worked diligently since fiscal 2002 to develop a track record of profits, a loss this year was unexpected.
Due to the uncertainty of the timing of customer orders, future results remain difficult to predict. Receiving orders and contracts in a timely manner is essential to the Company’s ability to sustain operations.
Although we incurred two quarters of losses in fiscal 2006, our profitability during the third and fourth quarter of the year and during the previous 13 of 17 quarters causes us to be optimistic about future sales growth and other possible sources of financing, including private equity funding or future public stock offerings. However, there is no assurance that any of these goals can be achieved.Would you hold? If so then you saw the stock go up 3x from $3 to $12 three years later.
Even recently there have been opportunities. I have doubled my money in this stock over the past year while the stock has stayed flat by selling into spikes then buying back when it falls. Sometimes there is news and sometimes not. The spike in Oct 2016 was due to a new contract announcement. This sort of thing happens with low float penny stocks. You can't catch them all and certainly not at the absolute peak but you can make some money.
So what does the future hold?
The company has been around for almost 60 years. They trudge along losing money for a while then nail a big contract. The industry certainly is not going anywhere.
There is potential. In Oct 2016 the company received a $2.4M order. The most recent 10k notes expected follow on orders:
in early fiscal 2017, the Company received an order valued at approximately $2,373,000 from Datron World Communications, Inc. for our military-grade DSP 9000 radio encryption equipment. Follow-on orders are expected as part of Datron’s five-year, $495 million Foreign Military Sales Indefinite Delivery Indefinite Quantity contract from the US Army Communications Electronic Command.The most recent 10Q and associated PR sound hopeful:
We also believe that, in the long term, an anticipated improvement of business prospects, current billable activities and cash from operations will be sufficient to meet the Company’s investment in product development, although we can give no assurances.
Backlog at December 31, 2016 and October 1, 2016 amounted to $2,000,000 and $313,000, respectively. The orders in backlog at December 31, 2016 are expected to ship over the next nine months depending on customer requirements and product availability.
Commenting on corporate performance, Carl H. Guild, Jr., President and Chief Executive Officer of TCC, said, “The Company continues to endure a prolonged slump in orders and we have closely monitored our expenses and made strategic reductions as appropriate. We continue to have a substantial pipeline of large potential contracts from both current and new customers. We are cautiously optimistic that some of these orders may materialize in fiscal 2017. However, the timing and outcome of these prospective orders is unknown and can be affected by our customers’ long procurement cycles, production schedules and delivery requirements.”
The big revenue and share price increase in 2010 was due to another big contract from Datron. There's a good article on Seeking Alpha going through the history.
So I don't know what will happen. But I bet something will.
disclosure: long TCCO
Excellent analysis. Thoroughly engaging how you present the past with charts and comments and make the case for TCCO. This is the template for all stock analysis. Bringing the high and low points with charts and wisdom. A symphony for stock pickers. Bravo.ReplyDelete
As always, enjoy your articles. Not many people talk about these tiny companies like you do, it's unusual and refreshing.ReplyDelete
On another note, to quote Peter Lynch, "Small companies have big moves and big companies have small moves". How can someone get a 22 bagger out of Apple now lol? Apple is a great company but that's going to take forever for that to happen. It'd be getting near the size of the economy if it did so I don't think that's possible anytime soon. A smaller company can increase its eps much faster than apple can (potentially). And yet be 1000x or more smaller still.
Stock suggestion: Prka. Parks! America. Penny stock at a 5 p/e. Might be up your alley.
Thank you. I'll check that outDelete
See http://otcadventures.com/?p=1900 for a good analysis. I don't own it.ReplyDelete
Knew I had heard about it before. Thanks.Delete
PRKA has 75 million shares out, a market cap of over 11 million dollars and revenues of 5 million. It is not an undervalued situation and needs a reverse split for any meaningful earnings to translate into a number that makes sense.Delete
I do agree that a reverse split would make it seemingly more investable, but don't let the fact that it's a penny stock currently cloud your judgment. If you look more closely at its financials, I believe it's undervalued. It has so many shares outstanding because it's a penny stock. It legitimately earned $2 million last year and is a credible wildlife safari operator (go visit one of their parks and/or look how many reviews and the quality of them they have on Facebook and Google). But that's just my opinion.Delete
I do nothing BUT buy penny stocks. Simple math. 11 million market value for a company doing 5 million in revs. with nominal earnings is overvalued.Delete
With over 2 million in gaap net income... So at a p/e of about 5. Yes, they have some NOLs they are carrying forward, but those earnings are real. 5 million in high margin income is not overvalued imoDelete
947,000 in revenues for the first quarter and earnings of 5,000 dollars is not, nor will ever be worth a valuation of 11 million dollars. They also carry 3 million dollars debt and have assets of under 2 million. I do however wish you luck. There are far better buys in small stocks.Delete
Weighted average shares outstanding (in 000's) - basic and diluted
you know you've made it when people start arguing about valuations on your stock blogDelete
Lol! I didn't mean to start a total war here. You already made it when you got a mention in the WSJ imo...Delete
@Michael: You realize that PRKA is a seasonal business, right? They make most of their profits in two quarters of the year. I do agree that the debt isn't quite my style (I prefer companies with no debt) but I think it's manageable here. Disclosure: I don't own any PRKA currently. I merely mentioned it to see if the author of this blog had any interest in covering it in some way.
on PRKA I read the OTC Adventures article when he first posted it. I thought it sounded interesting but not quite ugly and cheap enough for me. I prefer buying what other people hate, at the low end of a chart. PRKA has doubled in the past year and is up 5x in the past few years.Delete
Thanks for the idea. I'm always open to ideas
Ditto. I'm not saying it isn't interesting. Regardless of seasonality they did 5 million for the year. Warren Buffet doesn't spent 11 million to acquire 5 million in revenues.Delete
its moving today.ReplyDelete
Yes it is. I sold out at $4 and will buy back when it falls. Good Q. Question is what's next beyond the current contractDelete
I bought back in at $2.50Delete
It explodes like a rocket. Great work!ReplyDelete
Do you have a clue, when to get out?
I have no clue. I'm just waiting. As long as it's still going up I'll holdDelete
I wonder if some good news is coming. Maybe the market knows something
Wow, my comment came right at the top.Delete
Haha, yes it did. We'll see if the stock gets back up there. I sold some as the uptrend was broken around $5.20 and am holding the rest to see if there's any news coming. Next Q should be soonDelete
I am not sure. I guess NOW it goes to ZERO.Delete
Maybe this time I catched the bottom ;)Delete
I sold the rest of my shares today after the Q came out with nothing new. I'll keep watching and followingDelete
I have sold a bit later, but of of course before it went up 20%...Delete
Congratulations! Goes to show you what can happen with these types of stocks.Delete
Thanks. Do you actually have any system, regarding liquidity in these stocks? Or do you just buy when you are done with your analysis?Delete
Also do you have plans to get in again in TCCO, if so, do you plan ahead what would need to happen?
I don't have much of a system. I will buy some without much investigation into a stock if it fits my style. After looking further I'll buy more if it's cheap. I'll pay up a bit more for my initial shares, just to get some, then maybe try to get the rest cheaper.Delete
The liquidity on many stocks is so low that often all you can do is wait. I have 3 or 4 open buy orders now just waiting on a seller.
Yes I'll buy back into TCCO if the price drops. The only thing that has changed over the past few months is perception and when that changes back the stock will drop.
Was just looking through charts of listed illiquid nano-caps and noticed this one had a big spike earlier in the month. Turns a profit and jumps 300%, Nice!ReplyDelete
Yeah they had a really good Q. Big spike and I sold into that. I’ll wait and buy back when it drops back downDelete
Bought back in earlier this year just under $2, sold today into a spike around $9. TCCO is the gift that keeps on givingReplyDelete
You are crushing it! Congrats!ReplyDelete