Thursday, April 8, 2021

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

16 comments:

  1. "...and with the stock up over 200% I'm still adding". Interesting. I would rather not buy more because it has gone up so much. I prefer stocks which are still in the dog house.
    but the stock is small, cheap and has a strong "momentum". A nice combination.

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    1. I agree but it's cheap. Most of my buying was a year ago at $2. I prepared notes for a blog post and was still buying when the stock starting moving so I just froze and did nothing. Later in the year as the CEO kept making big share purchases I bought some more. And I've been buying more since the latest annual came out showing that great Q4.

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  2. Hey Dan, you are right, earnings really have been great on this one. Just one thing really holding me back has been where those cash flows have gone: currently looks like Las Vegas Real estate. Remains to be seen if this is just an astute investor making bargain purchases or something like empire building. Fingers crossed for the former, and good luck to all. Keep up the good work Dan!

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  3. Which statements in the Rubicon letter are false?

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    1. sorry that worded strangely so I've rewritten that sentence. I meant the false statements made by Gad

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  4. It appears the three properties presently owned by Ohana are at Waldorf Astoria:

    - https://maps.clarkcountynv.gov/assessor/AssessorParcelDetail/parceldetail.aspx?hdnParcel=16220712030&hdnInstance=pcl7
    - https://maps.clarkcountynv.gov/assessor/AssessorParcelDetail/parceldetail.aspx?hdnParcel=16220712098&hdnInstance=pcl7
    - https://maps.clarkcountynv.gov/assessor/AssessorParcelDetail/parceldetail.aspx?hdnParcel=16220712118&hdnInstance=pcl7

    Gad is the treasurer of the HOA: https://opencorporates.com/officers/154625524

    Given his history of self-dealing and the fact that SI recently leased an office in Las Vegas, what are the odds he occupies one of the Ohana properties?

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    1. what is his "history of self-dealing"? Do you mean the $4k he stole from the store he worked at in 2004 that I linked https://www.onlineathens.com/local-news/2012-01-15/old-theft-charge-could-lead-longtime-athenians-deportation, or is there more?

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    2. btw here's a podcast Sham Gad recorded with Bobby Kraft in Sept 2020. Gad recorded it at one of their Vegas buildings and said he was there on a business trip. https://planetmicrocap.podbean.com/2020/09/

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    3. Yes, I'm referring to his theft of funds that were intended to go to charity.

      Another question - when did he graduate from Stanford? The Paragon says he attended the Graduate School of Business Executive Program: https://pgntgroup.com/management-team but as recently as last year there was no mention of the same credential: https://web.archive.org/web/20200131110805/http://pgntgroup.com/executive-management/executive-officers/

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    4. It might be a shorter several month long credential type thing.

      This standard page lists someone of his name on a project team in 2019. https://www.gsb.stanford.edu/alumni/volunteering/act/projects/stanford-university-voice-initiative

      This 2014 Paragon press release mentions John Molloy completed "a three month Executive Management program at Stanford University." https://www.prnewswire.com/news-releases/paragon-technologies-announces-key-executive-changes-263063931.html

      Maybe Gad did the same management program Molloy did. You could contact PGNT and ask

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    5. The decision to invest in Las Vegas real estate is a valid concern. It does appear to be roughly cash flow neutral (67k loss in operating income, which should include depreciation on a rental property), so at least it shouldn't hurt the core business. I guess I would rather see them invest in an easy to manage investment than try to do something crazy, but they are probably banking much more on price appreciation than cash flow.

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  5. realized I forgot to mention one of my favorite things which is PGNT reduced the number of authorized shares from 20M down to 4M in 2019 so I've added a line about that

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  6. Nice numbers.Cheap company and fantastic risk-reward opportunity.
    Like very much all your ideas.
    Thanks for sharing.

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    1. You're welcome. Thanks for reading and commenting back to me

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  7. I haven't dug into their recent filing, but I also purchased a while back in the 2s. Forgot about it to some degree and bought a little more this year around $5. Haven't been patient enough to get as large of a position as I'd like. I have found myself wondering what it will take to get a normal P/E on this stock....get smallish spikes on good news, but certainly seems like it should be higher than it is at this point.

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    1. I agree it's weird for the stock price to be so low. They are fully filing and have been for a long time so it's not a lack of info. I guess the market doesn't trust them. Whatever, I'll take it and wait for something to happen

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