Opening Disclosure — Long-time readers should note some significant changes in how I communicate in the public domain. The primary purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.
Accordingly, this document should not be construed as an endorsement or recommendation of the companies or securities discussed herein. I am not an investment advisor and this is not an investment thesis. It is merely one part of the story, which I present for debate in hopes of determining all risks and upside potential. The disclosure at the end of this piece is critical to understanding the content and context of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.
A few weeks ago, some investors made a fuss when it became known that Thomas Unterberg sold his 9.9% stake during Q1. At the time, I told folks that it was nothing to be concerned about.
Those who ignored “my” knowledge on this have missed out on a quick 15%+ profit. That’s not a lot in the grand scheme of things, but when someone misses the train at the station, they often freeze instead of catching it at the next stop.
The analogy is apt, because I also preach about not “chasing” (i.e. jumping on a fast moving train). Catching a train when it’s taking a break makes a lot more sense. Same goes for stocks.
Getting back to “my” teachings, I put “my” in quotes, because Peter Lynch was actually the original teacher. Back in the early-90s (when he was already a legend), his books taught me that there are many reasons why an insider might sell a stock. Conversely, there’s only one reason why they buy.
In the 25-years that have passed, that has proven to be accurate much more often than not.
As it pertains to SMSI, the biggest insider (CEO Bill Smith) has been a buyer. In addition, there’s a growing list of institutional investors who clearly believe they’re going to make money on SMSI.
If you understand the first paragraph of this post, you must also understand that you can’t read into a sale unless you analyze it (in fact, this applies to any piece of information!).
In the case of Mr. Unterberg, I explained his situation in an earlier post. I also discussed the recent actions of Anson Management and Empery Asset Management.
FYI, a few other institutions have shared their ownership and trading information with me and, spoiler alert… they’ve been buying.
To that, you can add a laundry list of 150 retail investors, who shared their holdings when I called for an SMSI census. In exchange for their data, I provided them with an advance look at my complete analysis, which I have now made public.
The results? This group of 150 investors (151 if you include yours truly) have accumulated 28.3% of the currently-registered outstanding shares. According to my calculations, that only leaves 1.4 million shares for the rest of the world to buy…
…that’s less than $3 million worth!
Those shares could be soaked up quickly, due to a number of upcoming fundamental catalysts, which I’ve already discussed in depth. In addition to that, the company has several investor relations catalysts coming up:
- SMSI is slated to appear and present at the LD Micro Conference in California on Monday.
- Soon after that, Chardan Capital’s quiet period will end (I believe on June 17), giving them license to initiate coverage on the company… and as I’ve previously written, “Jim McIlree, is a sell-side analyst. The only reason for him to be on the call is to prep an initiation report… and he’s typically generous with his price targets.”
- Soon thereafter, I’ve heard that SMSI management is likely to travel to NYC to do a non-deal roadshow (a.k.a. marketing their story to Wall Street).
CEO Bill Smith is likely to be the headliner for the NYC tour. In addition to being the head honcho, he’s also the company’s largest single shareholder… and he has increased his stake every February for the past three years, with last year’s buy representing the biggest purchase.
…and if you’ve read the recent SEC filings, you know he’s not selling (and nor is board member, Andrew Arno):
“…Smith and Arno agree to take certain action to convert the shares of Series B Preferred Stock held by them pursuant to terms outlined in the Purchase Agreement, and further agreed that their shares upon conversion shall not be subject to resale registration rights…
“In addition, the Company entered into lock-up agreements with each director and executive officer providing that such persons may not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of any shares of the Company’s capital stock for a period of 180 days following the date of the Offering. Further, as a condition to closing, the following note holders amended their existing Secured Promissory Notes (the “Notes”) for the sole purpose of extending the relevant maturity dates to March 25, 2020: (i) Secured Promissory Note dated June 26, 2017, issued to Smith and Dieva L. Smith, as amended; (ii) Secured Promissory Note dated August 24, 2017, issued to Next Generation TC FBO Andrew Arno IRA 1663, as amended; and (iii) Secured Promissory Note, dated August 24, 2017 issued to Arno, as amended.”
They are not alone. In addition to Mr. Smith, Mr. Arno, Empery, Anson, and the growing retail contingent, a number of additional institutions have reported new or increased stakes in SMSI. In fact, since Empery’s filing, two new institutions have stepped forward.
Specifically, Frigate and Bridgeway initiated new positions, breaking into the list of Top 20 holders in the process. To be fair, there were also sellers. However, my one-week tally adds up to over 1,000,000 shares of net buying.
|2018-05-15||FRIGATE VENTURES LP||714,286||714,286|
|2018-05-15||BRIDGEWAY CAPITAL MANAGEMENT||190,000||190,000|
|2018-05-14||RENAISSANCE TECHNOLOGIES LLC||139,115||-42,610|
|2018-05-15||BANK OF AMERICA CORP /DE/||76,860||0|
|2018-05-15||UBS GROUP AG||60,250||56,486|
|2018-05-09||NORTHERN TRUST CORP||21,016||-100|
|2018-05-11||SEI INVESTMENTS CO||384||0|
|2018-05-15||LADENBURG THALMANN FINANCIAL||250||0|
|2018-05-15||ROYAL BANK OF CANADA||6||0|
So, we can add that to the growing list of data points, including Thomas Sattlerfield, who owns 1,200,000 shares and has been a buyer as recently as January… Empery, which owns 1,204,220 shares and 1,394,285 warrants (they originally registered 714,287 so they’ve been buying)… and Anson, which owns 1,219,124 (they also originally registered 714,287 so they’ve been buying too).
As if that’s not enough, last week, Iroquois Capital Management filed with the SEC to announce that they have increased their already-large stake. In March, they held 714,287 shares and 714,287 warrants. As of last week’s filing, those numbers have now risen to 1,306,672 shares of stock and 1,619,226 warrants.
One thing’s for sure… if we’re wrong on this one, we won’t be alone. The “smart money” has been accumulating and the shares are drying up.
Simultaneously, the latest numbers show that short interest is settling in. Shorts now represent about 10% of the shares outstanding and appear to have all but exhausted themselves.
With the LD Micro conference coming up next week, it feels like SMSI has exited the Wait Time phase and moved into the Gold Mine phase. It should be a fun summer. Stay tuned!
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- Mark Gomes Research
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Disclosures / Disclaimers: I am long SMSI. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.
I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.