Tuesday, August 28, 2018

PCYN is a Buy and Here's Why

Today's blog post comes to you from the land of the tiny and cheap.  If you're a follower of my blog you've heard this story before.  This company is pretty much my ideal: tiny, no debt, low share count, illiquid, high potential.

Procyon Corp (PCYN) is an extremely small holding company with one operating subsidiary: AMERX Health Care Corporation.  Current stock price is $0.18 giving a market cap of $1.5M.  Annual revenue is ~$4M and has risen 44% in the past couple years.

Cheap and tiny.

Let's do numbers then charts:
  • stock price $0.18
  • market cap $1.5M
  • fully reporting
  • rev $4.0M in 2017 vs 3.4M in 2016 vs $2.8M in 2015 & 2014
    • TTM rev $4.1M
  • EPS nothing
  • BV $2.3M flat 
  • diluted shares out 8.3M flat
    • 177k of these are convertible preferred
  • long term debt zero
Just based on those numbers the stock is cheap.  We are trading at 38% of sales and 65% of book.  No debt and growing revenue.  As with many of my stocks there is no earnings and that's fine, profit is not as important as the world would have you believe.  I'm going with a value around $0.50 for this one versus the current stock price of $0.18.  

Check out the revenue (chart 1) and stock price (chart 2) over the past 20 years.  Look at that change in perception!  These two charts reveal so much.  I see a tiny, forgotten company on the rise.  In the late 90's the public was so excited they bought the stock up past 20x revenue.  The company did not live up to expectations and the stock dropped to nothing.  A couple decades of solid performance has impressed no one and we sit at the depressed valuation of 0.4x sales.  How sad.  This is what happens when a company is tiny and does not do press releases or conference calls.  At least they post financials.

The stock is trading near an all time low.  It has been flat for the past decade, building a strong base upon which we shall see a strong rise...someday...I hope.  Think of what's happened in the past 20 years.  We had the dot com bubble of 2000 and financial crisis of 2008.  We've had wars and elections, inflation and stagnation.  Republicans and Democrats each with a turn at the wheel.  Yet through all of that PCYN has survived and not dropped much below $0.10.  Here we sit at $0.18.  Revenue has come up 400% over the past 20 years, 40% in the past two.  How can this stock not rise?  As I look to the future I think PCYN will continue chugging along and someday the stock will be materially higher than it is now.

Here's a 10 year chart showing long term support in the $0.10 - $0.15 range.  Beside a couple of surges up to the $0.30's this is very flat.  Building a base.    

Real Estate
PCYN owns their building outright with no mortgage.  I don't know anything about the Clearwater, FL real estate market so I'm just going to say this building is worth $0.5M like it was in 2006.  Some 10-k quotes from 2017 and 2008:
We currently maintain our corporate office, and those of Amerx and Sirius, at 1300 South Highland Ave, Clearwater, Florida 33756. Our office consists of approximately 3,800 square feet of space. We own the building free and clear of any mortgage or lien.
The Company leased this building until July 2006, when it purchased the building from the lessor for $550,000.
Amerx makes skin and wound care products.  The big opportunities they discuss are diabetic patients and an aging population.  The company is developing new products and they see a huge market.  Note developments over the past few years in the quotes below.  What I see is potential.  I don't think this market is shrinking. 

Amerx markets a proprietary line of AMERIGEL® advanced skin and wound care products made with Oakin®, proven to promote healing in wound and problematic skin conditions including the AMERIGEL® Hydrogel Wound Dressing, AMERIGEL® Post Op Surgical Kits, AMERIGEL® Saline Wound Wash, AMERIGEL® Care Lotion and AMERIGEL® Barrier Lotion. These products have become the core for building the foundation for Amerx to grow. In the second half of fiscal 2015, Amerx expanded their product brands by introducing the HELIX3 Bioactive Collagen®. HELIX3 is available in two forms, Collagen Powder (HELIX3 CP®) and Collagen Matrix (HELIX3 CM®) developed to address market segments previously unavailable to Amerx. In fiscal 2016, Amerx continued its brand expansion by introducing the AMERX branded wound care product line. The line consists of: AMERX Calcium Alginate Dressing, AMERX Foam Dressing, AMERX Gauze Dressing, AMERX Hyrdocolloid Dressing, and Amerx Wound Care Kits including AMERX Calcium Alginate Wound Care Kit, AMERX Collagen Matrix Wound Care Kit, AMERX Collagen Powder Wound Care Kit, AMERX Foam Wound Care Kit and AMERX Hydrogel Wound Care Kit. In fiscal 2017, Amerx expanded its product line to include a new segment of the wound care market by introducing the EXTREMIT-EASE® Compression Garment line, a patent-pending product. New products have demonstrated early success and product expansion has made it possible for Amerx to have success in providing treatments utside its historical niche. Amerx looks to continue this new product trend in fiscal 2018.
We have expanded our product line over the last three fiscal years to address a broader range of wound applications. Our core AMERIGEL® product line containing Oakin® established our presence in the physician market to address skin and wound care treatment needs. HELIX3® Bioactive Collagen was added to our product line in fiscal 2015 and AMERX® Kits, dressings and bandages in fiscal 2016 to address the broader wound care market needs for an increasing number of people with diabetes and obesity. This market is primarily comprised of hospitals, wound care centers, nursing homes, home health care agencies and health care practioners. The EXTREMIT-EASE® Compression Garment, introduced in 2017, enables Amerx Health Care to compete in the global compression therapy market, a multi-billion market that is projected to escalate secondary to aging populations, rising prevalence of diabetes, lymphatic diseases, cancer surgeries, venous diseases and sports injuries.
In 2017, we filed a patent application related to our EXTREMIT-EASE® product.
Amerx purchased the formulation for its Amerigel Care Lotion in fiscal 2017.
Directors and officers as a group own 50%.  One director, the son of the prior CEO, owns 43%. The company is run by the Anderson family with two directors and the CEO.  I don't know if they'll ever sell since the youngest Anderson on the board is only 40.  But maybe...

Conclusion and my View
When I'm considering a stock I check numbers then look at it from 2 points of view.  First on the numbers I want something cheap, tiny, and illiquid.  As I have said before I want maximum stock price movement and this is how you get there.  Give me low share count and low absolute price.  I want the penny stocks because stocks jump from one to ten pennies much faster than 100 to 1000 dollars.

My "cheap" mostly comes from revenue and the balance sheet.  Has revenue been growing or shrinking?  What's book value and what items are on the books?  Cash or real estate?  Most of my stocks earn nothing on average.  Earnings are great because they'll shoot a stock to the moon but that's sort of icing on the cake at this party.  Main thing is revenue growth and what could the company sell for.

If the numbers check out then it's in my bucket.  Once there I look first at a chart.  The biggest moves come from low priced stocks so I want to see it ugly and forgotten and low.  If a stock has been moving up I am hesitant.  A stock over $5 has to be pretty special to catch my eye.  I want to see stocks at an all time, or long term, low.  If a stock hasn't dropped below the current price in the past 10 or 20 years then I have some confidence it won't this time either.

If the chart looks good the last check is perception.  How could perception change in the future for this company?  If the business is dying, like say coal mining, I'll throw it out.  I want something exciting that gives potential for a major positive perception change.  Give me a growing field and a company pushing into new areas.  Health care, technology, security, communications.  Company size comes into play as tiny companies can have incredible changes of fortune based on a single product or circumstance.

Procyon checks off all the boxes.  The company is so small a single contract could have a  huge impact.  The stock is low, flat, and boring.  Market cap is only $1.5M.  Imagine what would happen if they announce a couple million dollar contract.  What if some 10Q reports a few cents earnings?  The float is only 4M shares... it wouldn't take much to move this stock.

What I see is a tiny company with potential selling on the cheap.  For a market cap of $1.5M you get $0.5M in real estate plus $4M in revenue.  There's no debt, the market isn't going anywhere, and revenue is growing.  The chart is flat and low.  This is a buy.

Disclosure: long PCYN


  1. Nice find Dan,

    It looks like PCYN has strong upside potential with good downside protection. Not only do you have the real estate but you've got the cash & equivalents, receivables, inventory and prepaid expenses. It's always good to know there's some liquid assets to act as floor on the share price.

    I look forward to seeing how this plays out.



  2. An anonymous poster is slandering me over at CornerOfBerkshireAndFairfax as a stock pumper. Maybe I didn't discuss risk enough in this post. Just thought I'd put up their identified risks here. http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/on-stock-blogs-or-when-to-look-a-gift-horse-in-the-mouth/

    1) The Roy M Speer Foundation owns nearly 20% of the outstanding shares. The Speer Foundation (or related entities and individuals) have owned these shares since at least 2000. Given that the foundation is located just up the road from the company's HQ, it's pretty safe to assume that it's an ally of the controlling Anderson Family. This means insiders + allies probably control nearly 70% of the voting power.

    2) Contra the blog's claim that the company has "a couple of decades of solid performance" under its belt, shareholders' equity has barely budged over the last decade.

    2008 FY: $1.985 million
    2010 FY: $2.133 million
    2017 FY: $2.287 million

    3) Perhaps most egregiously, the company has some "Series A Cumulative Convertible Preferred Stock" outstanding. Here's a quote from the most recent 10-K:

    "Dividends in arrears on the outstanding preferred shares total $357,426 or approximately $2.02 per share as of June 30, 2017. So long as any shares of Series A Preferred Stock are outstanding, the Company is prohibited from declaring dividends or other distributions related to its Common Stock or purchasing, redeeming or otherwise acquiring any of the Common Stock."

    The company appears to be unwilling to pay the preferred stock dividends. Why? It's simple: this company is run for the sole benefit of insiders, and insiders don't own any of the preferred stock.

    4) Finally, while mentioning that the "youngest Anderson on the board is only 40" the blog neglects to mention that this person (Justice W Anderson) was just appointed CEO less than one year ago! This is exactly what we would expect to see in a family company that isn't for sale: the next generation taking the reigns.

    the free float of the stock in question at a $0.18 per share price was something like $450,000. I think that's important in the context of thinking about this situation.

  3. In the spirit of sharing information from other message boards, person on Ihub noted the following positive signs:

    1) the insider purchase of 17000 shares @ .16

    2) The potential ramifications of the last 8k.

    Why are they relocating to a LARGER FACILITY?

    The Lease relates to the following leasehold premises: Approximately 3,220 square feet consisting of 2,380 square feet of air conditioned office space and 840 square feet of non-air conditioned warehouse space located at 13100 56 th Court, Suite 702, Clearwater, FL 33760.

    Tenant shall be relocating to approximately 4,892 square feet consisting of 800 square feet of air conditioned office space, 2,446 square feet of non air conditioned warehouse space, and 1,646 square feet of air conditioned warehouse space located at 13101 56 th Court, Suite s 805-806 , Clearwater, FL 33760 .

  4. I noticed they're incorporated in Colorado, which I thought was strange. One thing I look for with potential frauds is companies incorporated in Nevada but not located there. Have never seen a company incorporated but not located in Colorado though. Any insights? That fact is somewhat suspicious to me.

    1. I don't know for sure. Perhaps that's just where the founders were located when they started the company in 1987? The Andersons, who control the company now, took over in 1994 and bought Amerx 1996. Amerx was already located in Florida.

      You can read more of the history in their 1996 10KSB here: https://www.sec.gov/Archives/edgar/data/812306/0001000096-96-000355.txt

  5. Looks like the Speer Foundation is selling some shares https://www.otcmarkets.com/filing/html?id=17641478&guid=r-O-kWYbd75eJth