Monday, July 8, 2019

ECIA is on the Verge (Again...)

Encision, Inc (ECIA) is in the exciting field of surgical instruments.  This is one of those companies I get super excited about when I just read what they do.  From the most recent 10-k:

Encision...has developed and markets innovative technology that provides unprecedented outcomes and patient safety in minimally-invasive surgery. We believe that our patented Active Electrode Monitoring (AEM®) Surgical Instruments are changing the marketplace for electrosurgical devices and laparoscopic instruments
by providing a solution to a well-documented hazard unique to laparoscopic surgery. 
We address market opportunities created by the increase in minimally-invasive surgery (“MIS”) and surgeons’ use of electrosurgery devices in these procedures. The product opportunity exists in that monopolar electrosurgery instruments used in laparoscopic procedures provide excellent clinical results, but are also susceptible to causing inadvertent collateral tissue damage outside the surgeon’s field of view. The risk of unintended electrosurgical burn injury to the patient in laparoscopic surgery has been well documented.

Our patented AEM technology provides surgeons with the desired tissue effects of cutting and coagulating tissue in laparoscopic procedures, while preventing stray electrosurgical energy that can cause complications and even death. AEM Surgical Instruments are equivalent to conventional instruments in size, shape, ergonomics and functionality, but they incorporate a proprietary shield and electrically connect to an Active Electrode Monitor to dynamically and continuously monitor the flow of electrosurgical current, thereby preventing patient injury from stray monopolar energy. 
With our “shielded and monitored” instruments, surgeons are able to perform electrosurgical procedures more safely, effectively and economically than is possible using conventional instruments. 
AEM technology has been recommended and endorsed by sources from many groups involved in MIS. Surgeons, nurses, biomedical engineers, the medicolegal community, malpractice insurance carriers and electrosurgical device manufacturers advocate the use of AEM technology.
A year ago in May 2018 the FDA put out a surgical safety recommendation, seemingly written for ECIA, "Recommendations to Reduce Surgical Fires and Related Patient Injury: FDA Safety Communication."  ECIA followed up with a press release, stating "To the best of our knowledge, AEM® Technology is the only technical solution to this issue."

In Apr 2019 ECIA announced a new contract with Vizient. "After a review of Shielded AEM Laparoscopic Instruments and Monitors, Vizient's member council agreed this technology offers a unique benefit over other products available in the market today and recommended it for an innovative technology contract. We are pleased to award this new contract to Encision....Vizient represents a diverse membership base that includes academic medical centers, pediatric facilities, community hospitals, integrated health delivery networks and non-acute health care providers and represents approximately $100 billion in annual purchasing volume."

I don't know how you can read that without drooling.  It just sounds so good!  Look at the website.  Read the 10-k.  Here are some more quotes for you.
We have launched our new disposable monitor in a cord, the AEM EndoShield® Burn Protection System that dramatically simplifies the set-up in the operating room and will increase the penetration of our technology. We are executing to our plan of increasing market awareness of the devastating clinical and economic risk potential of stray energy and of driving customer demand through education and awareness. The implementation of CMS HAC (Hospital Acquired Condition) penalties is driving increased awareness and momentum, as more and more hospitals turn to our AEM® Technology as a solution to stray energy incidents. 
We are looking forward to new sales momentum starting in the first quarter of our current fiscal year...
Makes me want to sell everything I own and pile into ECIA.  My optimistic majority loves this stock.  I originally bought in the summer of 2017 when the company announced their first quarterly profit in forever. $0.02 on a $0.40 stock.  That's cheap if they can keep it up.   I thought potential was finally turning into reality and the profits were coming.  Flood gates were about to open up.  Just a few quarters in a row and it'd be off to the races.

Turns out I was wrong and all I've got so far out of ECIA is more "buying opportunities".  ECIA is one of those stocks that always seems on the edge of greatness.  Constantly a step away from massive profits and big stock gains.  ECIA is the poster child for earning nothing:


You see, this is one of my many stocks defined by potential.  Same as HYDI.  Same as DEWY.  Same as much of my portfolio.  I like to buy before a stock moves, when it sits at the bottom of the chart in the land of forgotten junk.  Where I can be alone.  Where I can buy on the cheap.  Check out these charts:




If anyone wants to know what "low priced" means here's your answer.  The stock is at the bottom.  Expectations are low and hope is gone.  No one thinks it will work out.  The flatness of the past few years means boredom has set in.  This is when I buy.

There is potential good and potential bad in everything.  My stock picking strategy is largely trying to find a much higher potential good than bad but still anything can happen.  When I look at the ECIA chart I see a bottom.  I see the stock near the lowest low of the past 20 years.  I see a stock that rose up 10x in 2001 and one that has never gone much lower than it is now.  That flat bottom looks like a coiled spring.  Upside vs downside.

But then again the ECIA technology is not new.  Their technology was born in the early 1990's.  Maybe it's stale, on its last legs, and near death.  Maybe it will drop to nothing.  I'm down 80% or more on VCON, DCAR, SOFT, and GIGA.  I grew up in Wisconsin and I'd say my style is similar to Rob Deer of the 1980's Milwaukee Brewers, you will either see a home run or strikeout when I come to the plate.  I'm not looking for singles.

So let's look at some numbers:
  • rev $8.8M flat vs last year
  • no earnings
  • shares common 11.6M in 2019 vs 10.7M in 2018
  • no preferred
  • no warrants
  • market cap $4.46M
  • stock $0.386
  • BV $2.35M vs $2.2M
  • long term debt: none
I would look at those numbers and say this falls into the not-expensive-yet-not-super-cheap category.  The potential is clearly there and that's what I'm after.  The share count is low.  Stock price is low.  Market cap is low.  Debt is low.  This is one I buy and hold and wait and watch.  Something will happen some day.  

This is one of the stocks I watch every earnings release with excitement, always expecting something.  It always seems so close.  

If you are wondering what might happen check out VLXC.  It has tripled in the past 6 months on nothing more than the mention of a new board member.  This is what can happen when expectations are low.  All it takes is the possibility of change.  


MRCR has tripled on not much beyond the old CEO passing things on to a younger generation.  New management is putting out press releases and seems more active.  The market has responded.  It's all about expectations.


Imagine what happens if one of ECIA's products catches on.  They just got a contract with a company that represents $100B in purchasing power.  I'd bet a $2M order doubles the stock.  Something has to happen one of these days.  

Maybe next Q...

--Dan
disclosure: long ECIA

17 comments:

  1. Nice write up Dan.

    I like the look of that long-range chart.

    This stood out when I was reading the latest earnings release;

    "We continue to open up new market opportunities. During the quarter ended March 31, 2019, our proprietary patient safety technology was recognized by the U.S. Department of Veterans Affairs and provides us with the opportunity to market our instruments and monitors into VA Medical Centers. The VA is the largest medical system in the U.S. providing service to more than nine million veterans across more than 1,200 facilities."

    Like you say, it seems primed for a move, just need some good news or a decent order to come in. I'll come along for the ride on this one :)

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    1. oh yeah. Dang I meant to include that quote. oops

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  2. Interesting concept. Thanks for this idea, as well as all the others that you have previously mentioned. Take a peek at TCOR to see if that fits your playbook.

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    1. Thanks and you're welcome. I have heard of TCOR but never bought in. Just one of those I haven't got to

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    2. We love TCOR too :) Dan, it's definitely worth moving to the top of your list to research soon

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  3. What I don't find so great is that this stock trades above book value, although the Company does not record profits or relevant cash flows. So the valuation might be appropriate. But the volatility could drive the price higher.

    Currently I like stocks such as QCCO, MSN or McCoy Global a bit more because these stocks trade below book and liquidation value.

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  4. I've followed this off and on for several years and I think the problem has been that buying ECIA's products is tantamount to doctors/hospitals admitting that they injured/killed patients when there was an alternative. Switching could open them up to greater liability in my non-legal opinion.

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  5. This company (TCOR) discloses only very limited information from profit & loss statements. The share price is not necessarily favourable if you look at the price chart of the last 10 years.

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  6. Do you have any experience with stocks that missed their reporting deadline and disagree with their auditors?
    E.g. HLTH looks cheap based on all fundamentals but the last reporting was at the end of June 2018. Further, I dont like their debts.

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    1. I have many stocks who miss their deadline. I don't know about if I have any with auditor disagreements. I do buy some stocks that haven't talked for a while if I still think they are cheap. QDLC was like that. And HAUP and HEMA. It can work out. all depends on the situation.

      HLTH I don't know about. I'll check it out

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    2. They probably disagree with the auditor on whether goodwill and intangibles (of 63 million and 116 million) should be written off. This is most likely. This would have a significant effect on the company's equity, as tangible book is close to cero. Therefore, this looks like a very risky bet. At best one could profit from the volatility.

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  7. Do you have an opinion on MILC? The company basically holds 2 assets, a share in an Indian financial services firm and a Activated Carbon plant located in Hawaii.
    Basically it is a holding company with little/no sales. The interesting part is that price to book is only around 0.2 and MC amounts to around 5.4 Mio. So you get the assets with a big discount of around 80%. About 11 Mio. shares outstanding. The stock is at a 5y low and shows some volatility. The volatility is probably the best part. You find an interview about the firm with Eric Schleien/Jan Svenda.
    I don't know exactly what to think of an "inactive" holding company.

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    1. Thanks for the idea. Side note, someone else emailed me about this one recently. Looks cheap. I don't own it and hadn't heard of it until a few weeks ago. I'll have to listen to that podcast

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    2. On MILC: I like the chart.  Like the price.  The company is weird and hard to think about.  A private Indian brokerage and a farm in Hawaii do not excite me so I would not buy into that.  The one thing that's interesting is how Jan mentioned they are selling off what they can of their stake in the Indian brokerage at 3x the current market cap of the company.  That sounds cheap.  Still I'm not certain because it's such a weird situation and company.  Maybe worth a small position.  

      Side note: I love Jan's work. Great stuff

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    3. Another stock that I find interesting is National Stock Yards. Eric Schleien wrote an article/podcast about it on Seeking Alpha (which is not hidden under the paywall). However, I doubt that the real estate is worth more than the entire market cap. I would expect that you get a large discount if you buy 191 acres of this land. I like the dividend yield of 7% and therefore the risk of this investment could be quite low.

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  8. What’s about the risk that this company goes bankrupt? E.g. the loss of the last quarter was 182k. Operating cash flow was minus 254k which is worse than the loss. So the company could make about 700k loss in a year if the trend continues. The equity amounts to 2.3 Mio. So in about 3 years this company could go bankrupt. Further, retained losses are 21 Mio. So it seems that this company has a long history of losses.

    Positive is that current assets > current liabilities and the company has no debts and that 3y is not such a short period.

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    1. Sure there is bankruptcy risk. On the one hand they have had losses. On the other they've been making do for a long time and I'd bet that continues.

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