USAT Collapses — Full Analysis (& Why I have Favored USATP)

As always, be sure to read my disclosures / disclaimers below!

 

Whew… I’ve gone LIVE on YouTube three times in the past 24-hours.

Yesterday’s 12:30 LIVE was a scheduled event to discuss SMSI, MRIN, GOOG, USAT, GAIA, TPCS, NBEV, TLRY, CGC, APHA, and HMMJ.

If you missed the live broadcast, you can see the entire replay here. If you only care about one or a few of those stocks, see my last blog post for a “table of contents” and direct links to my discussion of specific stocks in the video.

Among the stocks discussed was USAT.

In the video, I reiterated that I favor USATP and today exemplifies why. To be clear, I did NOT predict last night’s news or the stock’s reaction. What I’ve been saying is that the true value of USATP benefits from this turmoil, because USATP will pay shareholders about $44 per share (and growing by $1.50 per year) in the event that USAT 1) declares bankruptcy, 2) gets acquired, or 3) decides to buy back USATP.

#3 is not likely to happen at any point. However, recent events have greatly increased the odds that USAT goes bankrupt (though those odds are still very low, IMHO) or gets acquired sooner vs. later.

In reality, USATP should be rising on last night’s news, while USAT deserves to be falling (though nowhere near this much IMHO).

To help investors understand last night’s USAT news, I conducted two unscheduled LIVE broadcasts. One was a boring one of me working in real-time last night (which is great to watch if you want to learn more about what professional stock analysts do).

The other LIVE took place this AM, after I spoke to a USAT representative about the situation. It’s a long video providing 100% of my knowledge on the situation (just facts), followed by my take on how it might play out. There’s even a good exchange with a seemingly smart investor who couldn’t manage to handle the situation professionally.

You can find all of the videos on my YouTube channel.

For those seeking some additional insight into how these things tend to play out, you can check out past instances like PSIX and MXWL. In both cases, the stock paid off nicely for those who took advantage of the panic.

That doesn’t mean that the same thing will happen to USAT, but if the findings of the Board of Directors’ internal investigation proves mostly accurate (good chance), clear skies will eventually come and the stock should react similarly to past cases.

That’s a big “if”, but seems like a good bet. Still, I still favor the risk/reward of USATP for the previously-discussed reasons.

Beyond that, there was also the case of Saba Software (SABA), which went through an accounting issue that I closely tracked. To me, SABA’s situation seemed worse than USAT’s.

You can research that case via Google — https://tinyurl.com/SABA-USAT-1.

I had to go back and refresh my memory of the situation, but it appears that SABA never ended up issuing its restatements. Instead, it was bought out by a private company (which held no obligation to state or restate SABA’s results)… for $9 per share.

I found this old chart of SABA.

From it, you can see that SABA lost about half of its value, falling from $10 to around $5 in late 2011. However, as was the case with PSIX and MXWL, the stock soon rebounded (in this case rising 100% in 5 months).

Unlike other cases, SABA’s restatement dragged on for years. In April 2013, they announced that they would be delisted. Despite this, the stock did NOT fall back to its lows. In fact, it never even got back below $7.50.

SABA never got relisted.

However, due to the underlying value of the company, the shares performed well until its $9 buyout.

Again, this doesn’t guarantee anything in USAT’s case. There are indeed cases where things didn’t turn out well. However, when I researched Google for past cases, these are the first three I found (PSIX, MXWL, and SABA).

So, why did those stocks tank so badly before rebounding so sharply? Simple…

1. Panic. These things don’t happen every day… and when they do, it’s “scary”. Most investors haven’t been educated on how to assess these situations and simply bail out.

2. Institutional selling. When things like this happen, brokers will tend to suspend coverage until the smoke clears. Similarly, many investment institutions have rules against owning stocks in this sort of situation. Thus, they have no choice… they have to sell.

However, as the supply/demand dust settles, there are often savvy investor who realize that a stock often doesn’t reflect the value of the underlying company. They do the research, run the numbers, and take advantage of the panic. Basically, they “buy low”.

Conclusions

I can not predict how this situation will play out with surety. However, instead of reacting, I’ve researched… and my research lead me to believe that the risk/reward for USAT is attractive at these levels, but only enough so to warrant a small-to-modest position.

I have favored USATP since late-2017 and that doesn’t change with USAT’s decline (especially since USATP should be up on this news, in my professional opinion). However, we’re now at a point where I no longer consider it unwise to choose USAT vs. USATP.

USAT continues to have more risk, but it also has more potential reward over the next few months. It’s also more liquid, which is favorable to traders and folks with a shorter-term time horizon.

Net-net, I’m siding with USATP, but purchased a little USAT this morning (less than a 1% position in my portfolio) and may buy some more in light of the findings I’ve just presented. I’ve placed much larger orders to buy USATP at key levels.

Be sure to check out my videos to gain as full an understanding of the situation as possible. Hope this helps (information-wise and educationally). Cheers.

 

 

If you’ve missed my Live broadcasts on Marin Software (MRIN), you can see the first one here (discuss MRIN in greater depth at the 28 minute mark) and the latest one here (I discuss MRIN in greater depth at the 15 minute mark). Finally, I did an in-depth Q&A session on MRIN (at the 33-minute mark of this video)!

 

More Research:

• My Top Picks For 2019 (with link to MRIN video)
• My YouTube Channel
• Individual Stocks Showing Life
• The Quick Investor’s Guide To SMSI
• MoviePass Projected To Burn $600M In 2018
• Sprint Finally Rolling Out SMSI’s Safe & Found Nationwide!
• Lose 33% In 9 Months To Make 1,000% In 15?
• GAIA vs. MoviePass: CAC Shows Which One Is A True Mini-NFLX
• Buying SMSI — Today Is The Day I’ve Been Waiting For!
• Mark Gomes Research

 

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Disclosures / Disclaimers: I am long USATP, USAT, SMSI, MRIN, GAIA, TPCS, and HMMJ.  I am short NBEV and NBEV call options. 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.