PGNT for You and Me

I did most of my PGNT buying a year ago and with the stock up over 200% I'm still adding.  This one may keep going so let's take a look.  

It's been a while since we played our favorite game, Price That Stock!  Here we go.  No looking at the stock price before playing.  Humor me

We'll play a few rounds.  What do you think it's worth?  First the standard NoName stats:

• revenue $108M in 2020 vs 112.9 in 2019 vs 85.1 in 2018
• shares common 1.7M vs 1.7 vs 1.7
• no preferred or warrants
• book value $11.8M vs 8.2 vs 6.6
• net income $3.12M vs 0.99 vs 0.95 after taking out loan forgiveness
• EPS $1.84 vs 0.58 vs 0.56

Clearly 2020 has been a breakout year so your value will of course depend on how repeatable you think that is.  But no cheating!  Just on those numbers I'd go with a stock price of maybe $10 or more

Now for round 2 let's expand our annuals back a few years

Pretty nice growth.  Looks like there was some acquisition a few years ago.  I'll stick with >= $10 for the stock.  One impressive number is the share count through all that.  

And for round 3 we look closer at the recent quarterly numbers.  

Wow is all I can say.  The big earnings jump in 2020 was not a one off single quarter.  It built up all year and has just exploded in Q4.  Seems Covid was good to them.  At this point with such a rise my thinking moves from a dollar stock value to a range of upside versus downside.  My brain races to the possibilities: what if this is the new normal?  If the company goes back to 2019/2018 type numbers maybe the stock is worth $5-10.  But if $0.93 per quarter continues then this stock will be over $30.  What if it keeps growing?  

According to the market the answer is $6.45.  Seems low to me.  The stock has only risen ~$1 since the annual came out last week showing that amazing Q4 which surprises me.  

Paragon Technologies is a holding company run by Warren Buffett fan Sham Gad.  He used to have a value stocks blog.  He wrote a Buffett stock book.  He fancies himself a rational capital allocator.  The company has 4 business segments: 

I don't have much commentary on the businesses.  Some of the recent growth was investments working out.  They owned some ACY for example which spiked up about 10x in Dec so maybe they captured some of that.  Most of that growth is from the company's 2016 acquisition of South American IT products distributor SED International de Colombia for $1.4M cash.  That's the big revenue jump you see above in the annual numbers and it's crazy to think they got it for that price.

But the share count, that I do have comments on.  It is beautiful to see.  When Sham took over in 2014 there were 1.605M shares outstanding.  In 7 years Sham has increased revenue by 100M while adding 100k shares.  This is how you do it. In fact PGNT went as far as amending the Company's certificate of incorporation to decrease the number of authorized shares of common stock from 20,000,000 to 4,000,000. in 2019!  You don't see that very often.  

On the subject of Sham Gad let me mention some good and some bad.  On the good side he owns a third of the common and is still buying (100k more shares in 2020).  But he has a checkered past.  He had a theft charge in 2004 from a company he worked at.  This company dug up some dirt on false statements made by Gad to convince shareholders not to vote him onto the board.  Gad is the biggest risk in this story.

Overall my feeling is the numbers don't lie and those numbers look kinda like a snowball rolling down a hill to me.  Long term it's a bet on the CEO Mr. Gad which you may or may not want to take, but man is it cheap.  

--Dan

disclosure: long PGNT