SLGD is Becoming Something New

I first wrote up Scott's Liquid Gold, SLGD, in 2018 at $3.35, at the peak of the 10 year chart. With the stock at $0.40 now that's looking like a big mistake.

But one thing I like to do is hold for a long time and forever evaluate. I'm constantly reading press releases and filings. Checking over and thinking what might be next. I'll buy more when it makes sense and hold out for brighter days.  Rarely do I sell.

Recently I made back almost all the money I had lost on MINM. That stock I first wrote about as ZMTP in 2016. I've held for years and bought a lot when Minim took over the company in early 2021. Look at the bloodbath that followed (note there was a 1-25 stock split this year so I was buying at more like $4 than $100).

It was my type of setup. Small unloved company with new management. Adding in software and AI products, targetting higher margins. New management had a great prior exit selling their company Dyn and I thought they could repeat.

Sadly I was wrong and MINM turned into my largest dollar loss ever in 2022/2023. I had made it a large position and mistakenly bought the rising stock right at the top. I sold out in May 2023 in a spike that sent the stock up 10x in a day, taking the opportunity to show myself the door. Down ~90%. But I kept reading and following. The company is circling the drain and started talking about the possibility of bankruptcy in August.

I bought back in at ~$0.90 a couple months ago after they announced a new investor was buying up a controlling stake for $2.4m which "would be used for the sole purpose of settling all of the Company’s and its subsidiaries’ liabilities". The market cap had dropped to $1.2m for a company doing ~$50m in revenue. Not a lot of details in the filing but hey if $2.4m gets control and paid off debt then I could take a flyer on some stock valued at half that. 

The stock quickly dropped into the $0.70s putting me down again but then it happened. Nov 29 after hours I saw some volume and thought I need to watch this tomorrow morning. I always check after hours and before market open, looking for activity. On Nov 30 something woke me up early at 5:30am. I remembered MINM and checked my phone. The stock was up 700% on insane volume! I ran down to my computer and sold most of my shares. After the open I sold the rest, missing the stop but what can you do.

Look at that volume on a stock with 1.4m shares outstanding!  No news.  In an instant I made back 90% of my MINM losses.  This is why I continue following year after year, why I like a low share count, why optimism wins. You just never know.

On SLGD I am pretty much breakeven at this point. I've held for many years, first buying in 2016 and holding through a near triple then adding during the decline. In mid 2022 the stock dropped under $0.50 and I've made it one of my largest positions between $0.20-$0.40.

There is change afoot. In Apr 2021 the CEO since 1990 Mark Goldstein retired, leaving Dan Roller as the new chairperson of the board. In Dec 2021 their distribution agreement with Church & Dwight Co expired without renewal and they sold the Dryel product line. They terminated China distribution in July 2022 and sold Prell in Dec 2022. In Jan 2023 they even sold the Scott's Liquid Gold product! In June 2023 they sold off Alpha skin care and BIZ, using the money to pay off loans.

All this while Dan Roller of Maran Capital has been buying.  Having been in the stock since 2020, he has averaged down heavily. He held 5.7% of the stock in the 2020 proxy then 12.8% in 2021, holding flat until recently.  He got Goldstein's shares in June for $0.33. He bought out another 5% shareholder in July 2023 for $0.33. He now owns 41% at an avg price of $0.68. 

SLGD put out a 10Q a month ago and I think all they have left is pets, doing ~$4m rev per year. Book value is $0.45 per share with $0.36 of that being straight cash. The division sales paid off all debt and I'm told Roller is trying to sub-lease to pay down their lease liability.  Roller has turned the balance sheet into a strength.  He's been selling off division after division over carrying value and I'd bet in a liquidation this gets $0.70 today. 

As we all know the question to ask is what does the future hold. We have major change happening with most of the business being sold off. New management in place and motivated since Roller is down 40% even still from current prices.

The question is what will he do with it. He is trying to turn it into a win for himself and his investors.  No dividends or distributions have come out.  I think he'll try to buy up something new. Maybe a merger or acquisition. SLGD only has until Jan 23, 2024 to use the Scott's Liquid Gold name so something has to happen.

The risk is Roller doesn't know what he's doing.  I mean he is already down on this.  Maybe he makes a bad acquisition or pays himself all the excess cash as compensation.  So far he seems to be on the up-and-up but who knows.  

For me I'm looking at the bright side. SLGD may be down but it's not out. New blood is pushing the company forward. Let's see where this leads.


--Dan
disclosure: long SLGD

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