Saturday, February 15, 2020

Buying the DYNT Chart

Sometimes you need little more than a chart.


A friend mentioned DYNT to me a few months ago.  First thing I did was open up a 1 year chart.


Stock had dropped from $3 to less than a dollar.  Volume way up.  Looking great.  People hate it and are giving up, selling as much as they can as fast as possible.  It was November and this is what I was looking for: tax loss selling.  What we do at the end of the year is buy what others are throwing away.  Next step a 5 year chart.  


And now I'm really interested.  Look at that beauty.  Stock was near $3 for years and that tells me the world was pretty sure this is a $3 stock not too long ago.  How can the global consensus be so steady then drop by 75%?  What has changed?  Next a quick look at the latest 10Q (as of Nov 2019):
  • preferred stock 4.9M out, same as last year
    • paid out 126k shares of common to cover the preferred dividend vs 66k last year
  • common 8.7M vs 8.4M the prior year
  • BV 21M vs 20.8
  • rev 16.4M vs 17
  • net income -68k vs +129k
  • Dynatronics Corporation (“Company,” “Dynatronics”) is a leading medical device company committed to providing high-quality restorative products designed to accelerate optimal health. The Company designs, manufactures, and sells a broad range of restorative products for clinical use in physical therapy, rehabilitation, orthopedics, pain management, and athletic training. Through its distribution channels, Dynatronics markets and sells to orthopedists, physical therapists, chiropractors, athletic trainers, sports medicine practitioners, clinics, hospitals, and consumers.

At this point I'm buying stock.  Only a few minutes decision time to put in an order.  I don't see why it's down.  With a share price of ~$0.75 and market cap of $6.5M the stock is trading at 30% of book and 10% of sales (annualizing this Q).  Cheap stock and nothing has changed yet it's down 75%.  That's a buy.  

Next in my process is a long range chart.  

One look at that and I'm buying big time.  What a story told by that chart!  That chart goes back 37 years and we're sitting at the lowest low.  Imagine all that has happened in that time.  Management come and gone, divisions sold or died out, acquisitions in, acquisitions out.  Wars.  Democratic leaders, republican leaders.  The personal computer, cells phones, robotics. Stock market crashes with economic booms and busts.  Fads come and gone, new patents granted and old patents expired.  Yet with all that the stock is telling you right now is the worst time ever.  Do you believe it?  

The main thing I see is potential.  Try this one:

That was all my thinking.  I did a pretty good amount of buying in Nov, Dec, Jan with that.  It's now Feb and the stock is at $0.90.  Here are some updated 1 year, 5 year, and max length charts.  It has come up and leveled a bit.  We've had two spikes in the past couple months but I didn't sell as it wasn't high enough.  


You have to ask yourself what the future holds.  I lump this into my pile of survival stocks.  As long as the company survives I think the stock will be materially higher than it is now at some point in the future.  A lot of my investing is based on this one idea.  Buy at the bottom and wait.  I think they'll keep moving along.  Likely they will not turn a profit but they pull in revenue and come out with new products.  There may be acquisitions or division sales.  The lights will stay on and one day something will catch on and then BOOM.  

Sure they might die.  Dilution will continue.  Profit is nothing.  Looks to me like it'll be good for a spike.


--Dan
disclosure: long DYNT

28 comments:

  1. A near perfect candidate for the portfolio. Everything lines up, the market cap, the share price, the S/O, the long-range chart. I did a bit of digging to see if they own any property, turns out they sold their Utah property back in 2014 and then leased it back, they used the $3.8 Mil sale proceeds to pay down debt. Obviously there will be some dilution over time as they are paying out the pref div's in common stock but it's not a major concern. As you say, the long range price chart tells you pretty much all you need to know here. Buy at the point of maximum pessimism, wait, and good things can happen!

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    Replies
    1. Yeah, there is more to the story but the chart is the main event. My guess is the stock has come down because their big acquisition a couple years ago hasn't produced profits as people hoped. Revenue has doubled but no profit and now we have the preferred plus warrants. The sharp drop in Feb 2019 I think was just Q with poor numbers that broke the camel's back. In any case I'm just buying at what looks to be a bottom then waiting. Like you said, good things can happen

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  2. I think you should deduct the goodwill from book as this is usually "hot air". So tangible book is 20.9 - 7.1 = 13.8. So price to book is about; 8.9 Mio. (9.95 Mio total shares x 0.897 current stock price) / 13.8 = 0.64. The Price / Sales of only 0.14 is more interesting. However, I prefer EV/Sales which includes also debts and cash. According to gurufocus it is 0.48. Still very low.

    Hmm, I am wondering why they did not depreciate their goodwill, considering that they record losses. Possibly the cash generating unit related to the goodwill is profitable or they expect profits in the future...

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    Replies
    1. Goodwill could be hot air. There are issues. But still cheap

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  3. This stock is covered by 4 analysts. This is quite surprising as this is a tiny stock. Usually, I do not rely on such opinions and prefer stocks that are not tracked at all. However, the average 12 month price target from the analysts is usd 3.

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  4. With all due respect, your analysis is full of errors:
    1) The 10-Q you linked to is for the three month period ended 9/30/19. A 10-Q for the three month period ended 12/31 was released on 2/11, so your #s are all out of date
    2) Just under 9.95 million shares of common stock are outstanding. The 680,000 shares of Series C common stock still outstanding should probably be added in as well, since they are, over time, being converted to common stock at a 1-to-1 ratio 
    3) Your book value calculation doesn't factor in the Series A and B preferreds whatsoever. The tangible book value of the company is slightly negative once the Series A and B preferreds are factored in at their liquidation preference levels
    4) The company has significant debt and has not been profitable for some time

    ReplyDelete
    Replies
    1. 1. Are you talking about the numbers in the bullet points? Those were the latest I had when looking at the stock in November. "Next a quick look at the latest 10Q (as of Nov 2019):"

      2. Are you comparing to the bullet point 8.7M number? That came from the latest 10Q as of Nov. Yes they are diluting constantly so go ahead and add in as many as you think are appropriate. I was comparing to the prior year. I was looking at how things have changed from when it was a $3 stock to when it's a $0.75 stock. Shares out when from 8.4 to 8.7M which I don't think should drop a stock by 75%.

      3. My book value comes directly from the balance sheet. I had a paragraph written about the preferred and warrants and liquidation preference but I deleted it. I'm trying to focus on what I see as important and here it's the long term chart. The preferred is noise. I also didn't talk about their big acquisition a couple years ago or changes in leadership. It's noise.

      4. Yes very true. Maybe that's why the price is low.

      Delete
    2. One reason the preferred, etc are not as big a concern to me is position sizing. DYNT is one of about 60 stocks I own. It's a 2-3% position.

      Generally for anything I write about it's one of many and individually may not work out.

      Delete
  5. Hi,

    Thanks for a nice post. I think I have read that one should not buy these stocks when the selling volume is high and the stock is dropping. One should wait to buy until the "worst" selling volume has dried up. Agree?

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    Replies
    1. Yes it's nice to wait for a base to form after a stock has been dropping. Personally I don't always wait if I just think it's cheap enough or has dropped too far.

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  6. DYNT stock is down because they are paying the interest on their 8% preferred debt in shares of stock. As the stock declines, the number of shares issued to pay interest on the debt skyrockets and the market is saying that these guys have entered a death spiral dilution situation. The multi decade chart here is not relevant as they underwent these massive capital structure changes in acquisitions over the last 5 years.

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    Replies
    1. This, along with the negative equity really ruins it. Strip out payables increases and operating cash flow is negative. This is purely speculation based on the historical prices and the hope that some cash flow can be squeezed out of their $60m revenues, while the revenue per share will continue to decline with dilution...

      Delete
  7. Have you looked at WSTL? Selling at negative EV, well below NCAV, no long-term debt.

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    Replies
    1. The problem with WSTL is management is running it into the ground. Where is the positive catalyst?

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    2. have never looked at it but I should. Someone else has mentioned it to me before

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  8. On a statistical basis, negative EV stocks could be interesting, see here:
    https://blogs.cfainstitute.org/investor/2013/07/10/returns-on-negative-enterprise-value-stocks-money-for-nothing/

    ReplyDelete
  9. This is an awesome blog! Have you checked out Shineco Inc? A net net stock with eevenue of 31 million, cash of 36 million, 60 mill in current assets, 83 mill in total assets, FCF of about 2.5 mill, and a Market Cap of 16 mill as of June 30, 2019.

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    Replies
    1. Thanks

      No I haven't looked at TYHT before. Numbers look cheap for sure and some of that is probably due to it being in China

      Delete
  10. Yes, Chinese stocks in U.S. are controversial and fraud is a real risk related to these stocks. It seems that you can't prosecute management in China. See e.g. here:
    https://www.chinalawblog.com/2016/03/buying-stock-in-chinas-publicly-traded-companies-good-luck-with-that.html

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  11. Huge movement over past couple days. It looks like it is being driven by a "Buy gas mask manufacturers" play on the coronavirus. You may be getting your spike already

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    Replies
    1. I'm watching and waiting. Up over $1.60 after hours, almost double from my post. fingers crossed...

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  12. What an analysis! It doubled within 4 months.

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  13. And the spike is here. Sold some this morning in the mid 3's. Now waiting and watching

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  14. Is there a reason for this spike? This is very unusual as other stocks are currently crashing.

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    Replies
    1. Probably coronavirus but doesn't matter to me. movement is movement

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    2. If there are no news it is often a good idea to sell in a spike. (It seems also in this case). I noted that the traded volume did go up extremly. So probably some algorithm traders or stock promoters pushed the price up. These strong price moves can last for some days and it is not unlikely that subsequently the stock goes down again to the initial value.

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    3. I'm sure the spike is coronavirus. Just search for it on twitter.

      dynatronics sells N95 masks: http://catalog.dynatronics.com/publication/?m=38667&i=281308&p=540

      they also sell disinfectant wipes and sprays that specifically mention coronavirus in their datasheet: http://catalog.dynatronics.com/publication/?i=281308&p=67

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  15. Strange that the stock is down again. But the stock still seems to be interesting. On the other hand, now large companies such as airlines are also becoming cheap or trade at an all time low (recovery e.g. after 9/11 was strong).

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