Good morning folks. We're sending this edition of the SCN newsletter out in the morning rather than after the close for the usual reason we do so.... after the close may be too late. The double-dose of news is just that urgent; as not one but two of our Featured Stocks shared some amazing stuff this morning.
In Monday's edition of the newsletter we pointed out Double Crown Resources (DDCC) was enjoying more than its fair share of buying, as traders were highly inspired by the potential of its Translock2 commodity container/dispensing system. We weren't kidding last Tuesday when we said it could revolutionize the way a huge swath of the shipping industry works.
In light of today's news, we may have underestimated just how big of a deal Translock2 could be.
As a quick refresher, the nearby picture is of several connected Translock2 containers. It should look vaguely familiar to most of you. They're not unlike intermodal containers in terms of size, shape, and function, but mechanically are a delivery and dispensing platform for drybulk goods. The design allows commodities like sand or livestock feed to be moved with all the flexibility of intermodal transportation, but without any of the headache of aggregating and splitting up those goods to get them properly shipped to their final destination. With Translock2, drybulk purchases are packaged up by the seller at the supply source, and then delivered -- just as ordered -- all the way to the buyer's site in the container where they're then dispensed. Nobody ever needs to touch the goods en route.
Yes, Double Crown Resources was recently granted a patent on the Translock2. That was the big news last week. Today's news is the logical extension of that patent news. How so? This morning, DDCC announced it was filing for more patents to protect specialized versions of the container/dispenser system. I'll just let the pertinent part of the press release do the talking.
"With receipt of the Notice of Allowance approving Translock2 for a U.S. patent, Double Crown management has been working with several industry leaders to perfect industry-specific containers for multiple bulk commodity products including cement, coffee beans, precious metal tailings and more. In anticipation of the positive results on patenting efforts, we have been working over the past few months to assemble an advisory group of experts in logistics, railroad engineering, bulk cargo transport, mining & minerals, the chemical industry, as well as specialized legal and patent counsel. This advisory group has more than 200 years of professional experience in key industries and will help position Double Crown in the global macro logistics marketing field with Translock2. The advisory team, working in conjunction with our potential clients, will be prototyping industry-specific containers which all have the patent-approved interlocking mechanism, multiple chambers, and the unique multiple delivery system options."
In other words, Double Crown us going to build a Translock2 for sand, a different one for cement, a different one for coffee beans.... you get the idea.
Not that the Translock2 needed any help, but to the extent it did, it just got it. This is the kind of must-have solution commodity suppliers are going to go nuts for. With patents poised to protect its product, DDCC could become an outright monster of a company in the very foreseeable future. We've got a feeling today's announcement is just a brief glimpse of a great hand, so to speak.
As for what this all may mean in terms of revenue, that's still tough to pin down. We do know, though, the company already has a $1 million commitment for the sale of 50 Translock2 containers, which translates into a price of $20,000 each.
We also know approximately $30 billion is spent every year delivering drybulk goods. From a sheer tonnage perspective, about 4 billion tons of drybulk goods were shipped by sea last year; much of that tonnage could have easily been shipped in Translock2 containers. As for intermodal containers, about 130 million TEUs (twenty-foot equivalent units) were ferried last year. Translock2 melds those last two statistics. Today's news just sets up even greater marketability for the Translock2 idea.
Now all of a sudden yesterday's amazing strength from DDCC and the doubling of the stock's price over the course of the past month makes sense - I'd be willing to bet there was somebody out there who somehow knew what was coming. Thing is, with the news not being publicly available until this morning, the bulk of any buying associated with the announcement is apt to still be in front of it.
Like we said last week, this is just one of those story stocks that may not look back once it reaches full speed.
The other must-read news today concerns Staffing 360 Solutions (STAF).... the IT staffing agency we've been keeping tabs on for nearly two years now, watching it grow from a company doing next to nothing in revenue to an organization that should be doing $300 million in annual revenue sometime around 2019. STAF is simply way undervalued, and a big name in small cap stock research just said the same thing this morning.
To get any newcomers up to speed, we've mentioned a couple of times now how according to the Bureau of Labor Statistics, software and developer jobs will grow by 19% between 2014 and 2024, making it one of the nation's fastest-growing non-medical career choices. When you broaden the data out to "computer and mathematical occupations", the ten-year growth projection is 13.1%, which IS the second-highest growth pace among all jobs (second only to healthcare).
Better yet, late last year, technology industry information provider CompTIA noted in its 2016 outlook "Based on how 2015 data is tracking, the year could record the highest IT job growth rate in over a decade." The outlook is underscored by an interesting piece of data - while the nation's overall unemployment rate is right around 5%, within the IT world, the unemployment rate is a mere 2.6%.
This is why IT staffing firm Staffing 360 Solutions is so well positioned, and why its roll-up strategy has been so effective.
Here's the stunning part of the STAF story: Over the past four quarters, Staffing 360 Solutions generated $153 million worth of revenue, and made a nice, big swing to positive operational cash flow last quarter. Gross profits and EBITDA are really starting to widen. Yet, STAF is still only an $11.5 million company in terms of market cap. The market just isn't connecting the dots.
In some ways we suppose that's a good thing, as it means newcomers can still buy it for a song. On the flipside, it would be nice if investors - amateurs as well as professionals - would start to price STAF with the respect it deserves.
Well, good news on that front.... SeeThru Equity has done some deep digging, and come up with a price target that really gives credit where credit is due. See, SeeThru Equity says STAF should eventually be worth $5.65, which is 176% more than the stock's current price.
STAF won't get there overnight, obviously. It's on the long-term radar though. I'd be willing to wait two or three years for a strong triple-digit gain.
As for the rationale, SeeThru used a couple of different approaches. The core methodology was a discounted cash flow analysts though, based on the company's existing growth rate. It wasn't DCF analysis that really grabbed my attention though. It was this snippet regarding EBITDA:
"...STAF appears to be approaching an inflection point where EBITDA could soon surpass cash outlays for acquisitions as the business continues to scale. In its most recently reported quarter, FY3Q16, ended February 29, 2016, SATF generated $1.0 mn of adjusted EBITDA, which marked the sixth consecutive quarter of positive adjusted EBITDA for the company."
We still contend this is the aspect of the company not enough people appreciate (earnings growing even faster than the top line is). It's good to see someone else sees the same buried treasure.
Here's the really interesting part of the SeeThru Equity price target of $5.65 on STAF.... it pretty much jibes with the $6.00 price target Greenridge Global Equity Research set for the stock back in late March. For two small cap research outfits to independently come to the same conclusion about the same company can't be a coincidence.
It's also worth mentioning Staffing 360 Solutions shares soared following the release of the Greenridge price target. I see no reason why we couldn't see a similar effect this time around.
Here's how to review the SeeThru report for yourself.
What can we say? It's raining good news. If you were on the fence about DDCC or STAF, today's announcements are the kind of news that should probably tip you over to the bullish side. As always, use limits on any trade entries, and use protective stops if you get into a position with either name.