Smith Micro (SMSI) Explodes! #PatiencePays

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

 

It’s been a long time since I’ve actually written a post. For better or worse, YouTube has proven much more time effective for sharing my picks, research, and lessons (which is enabling me to focus on finding new winners).

For those of you who prefer my written work, I apologize. As a consolation, I’d like to introduce Aaron Warwick. Aaron is bright investor who has volunteered to help timestamp and summarize my work on YouTube. If you find his efforts useful, please provide your feedback and we’ll keep it going.

FYI, here are his timestamp notations for my most recent video:

0:00 Disclosures/Disclaimers/Intro; stressed desire for people to reshare (vs liking) his links to broadcasts 4:36 moves in 1% portfolio and some investing lessons 29:20 investing processes and methodology 49:00 $SMSI 49:20 today’s announcement, its significance, and implications 51:57 $S and SafePath current run rate and possibilities for revenue 53:35 Evolution of an ecosystem benefiting Smith 54:15 ISM acquisition and related lessons 1:01:05 Smith 10K from yesterday, past cyclical performance, and related stock prices 1:05:50 conversation on his and $SMSI’s confidence in signing new T1 1:10:00 $SMSI operating model 1:12:10 conversation on identification of possible T1 carrier 1:16:20 $OSSIF (new pick) Intro and synopsis and importance of building an operating model; stressed not to immediately buy this stock 1:22:40 $NBEV emphasis on whether you can trust management to execute on promises; raised revenue but lowered EBITDA 1:28:02 $GAIA as a content creator 1:29:28 $TPCS and their immunity from recession and the bipartisan support for military spending; adding aircraft to subs 1:33:03 Q&A begins with Q on $SMSI Gryphon announcement & equity raises 1:35:04 Q: how can we get an earlier “heads up” on broadcasts 1:35:22 policy on stock requests on stocks he’s not already covering 1:36:12 Q on timing when to buy a stock 1:38:08 Q onbooks he recommends on investing 1:39:12 Q on effect of $S $TMUS merger on $SMSI 1:42:22 Q on details of determining fully diluted EPS on $SMSI with respect to warrants.

 

OK, let’s jump into today’s topic…

At the time of my last post, the 1% Portfolio was under-performing the market. As I’ve noted before, my picks don’t necessarily go up (or down) with the market. These are small emerging companies that are liable to break out at any time (or not at all). That volatility is the price of seeking excessive returns.

Since then, our patience has paid off. My 2018/2019 picks are now up 17.2% (65.3% annualized) versus -1.9% (-5.8% annualized) for the Russell 2000. Those who have chosen to use the Russell 2000 as a hedge against my picks have been rewarded with profits on our longs, shorts, and hedges!

The most notable winner has been my largest position. As most of you know, that’s Smith Micro (SMSI). Smith has delivered a 1-year return in excess of 70% (in stark contrast to the Russell 2000, which has gone nowhere).

More importantly, the business (and consequently, the stock) appears to be finally breaking north into a new secular bull trend.

SMSI

The is reason is simple — execution. The company is now firing on all cylinders, having just delivered its second straight blowout quarter. The company also just completed an accretive acquisition and released a demo of their latest offering (if you having seen it, take 5 minutes to check it out!).

 

Other than that, be sure to check out my YouTube channel (you can SUBSCRIBE free to receive alerts regarding my upcoming LIVE/recorded broadcasts) and real-time contributions on StockTwits.

Cheers!

 

More 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.

28 thoughts on “Smith Micro (SMSI) Explodes! #PatiencePays

  1. Mark, I had not seen what this app can do and I am really impressed as I have only been basically monitoring the numbers. As a side note, I would not want anyone checking on my driving since I am very impatient but to check on my kids is ok.
    Time stamping your videos is very helpful because it makes it easier to go back and listen to what you might have missed or you cannot tune in live you can listen to updates on stocks you are interested in.
    Thanks for all you do.
    Eric

    Like

  2. Some facts and figures…..

    (1) In 2010 SMSI reported EPS of 36 cents a share.
    (2) On 31st December 2010 the share price was $15.83 (split adjusted)

    So that is a P/E ratio of nearly 44

    With just the Sprint Safe and Found deal alone and assuming 25% growth in the ISM Smart Retail Business (they have said “lower double digit growth”), no new tier-1 carrier, no revenue from IoT and flat CommSuite revenues, the financial model I have created based on current download figures for Safe and Found, indicates an EPS of around 44 cents in 2019. This financial model assumes a blended gross profit between the 96% figure currently being achieved by ViewSpot and the 87% figure recently reported for Q4 with the existing business.

    Now if the PE ratio was 44 in 2010 why should it be any different in 2019?? Applying that PE ratio gives a share price of around $19 by the end of 2019.

    Sounds crazy but I cannot see errors in the calculations. Mark’s original forecast indicated a non-GAAP EPS of around 30 for 2019 but that was before the recent figures for ViewSpot were released. Even with an EPS 30 cents, with a P/E of 44, the share price could be over $13 by the end of 2019.

    Mark’s very early prediction of Safe and Found being a home run for SMSI is looking to be very astute and perceptive.

    Like

    1. Your facts are correct (kudos for digging them up), but “assuming” ANYTHING (like 25% ViewSpot growth) counts as an “error in the calculations”.

      I like your effort, but can’t condone shortcuts in analysis.

      A good investor must learn to contact the company about any and all assumptions.

      In fact, I’ve done that and can tell you that there are specific reasons why your assumptions are aggressive, even though you take the conservative approach of not including a new tier-1 carrier, revenue from IoT, or growth in CommSuite revenue.

      For example, ViewSpot is a new and VERY profitable business, in which SMSI is going to invest money to unlock its full potential.

      I’ll stop there, hopefully encouraging you to take the next step in your analytical development by contacting the company 😉

      This is still my favorite investment, but let’s do the analysis right. Cheers 😎👍🏼

      Liked by 2 people

      1. “there are specific reasons why your assumptions are aggressive”

        This can only be

        (1) The current download rate for Safe and Found will reduce. This is unlikely since the company is reporting substantial subscriber growth.
        (2) Operational Expenses will increase. Again, unlikely since Tim Huffmyer has said he is not expecting major increases to Op Ex.
        (3) If SMSI is going to invest in ViewSpot to unlock its potential my estimate is conservative not aggressive.
        (4) A PE of 44 is aggressive. This is based on an historic number when the company when was in a growth phase similar to today.
        (5) Gross margin will decrease. This would imply increased cost of sales which, again, is unlikely

        So I am not entirely clear which assumptions you consider “aggressive”??

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          1. No… I’m simply choosing to not spoon feed an investor. Encouraging someone to fish is better than giving them a fish.

            One of an investor’s biggest weaknesses is being “suspicious” and “assumptive”. Those are hindrances to investor success.

            People love to make up stories and/or conspiracy theories in their minds and believe they are true. There’s no room for that in investing.

            I provide plenty of substance in hopes that others will follow suit and contribute. Sometimes you’ll get the whole story from me. Sometimes you won’t. I don’t want people to get lazy. Otherwise, I won’t get anything back for my efforts.

            I’d like to see everyone come together to form a formidable community focused on analysis, not a bunch of people reliant on my views / research. I’m no god… but a team-oriented group of like-minded folks can become godlike.

            Stop using your imagination so much and start checking more boxes.

            #MrSpock

            Like

  3. Thanks for your comments! I have tried e-mailing Charles but he doesn’t respond. And I also assumed (maybe rashly again!) that if all they would say on a CC was “lower double digits” growth with ViewSpot they wouldn’t elaborate further even if I contacted them.

    Either way, the figures, if they are anywhere near the truth, point to a much higher share price by the end of the year with the underlying assumptions that they don’t successfully win any more business which is highly unlikely. The EPS of this business is truly astounding and with the addition of the ViewSpot business it gets even better.

    I think I’m dreaming 🙂

    Like

    1. ALL assumptions are rash unless EVERY attempt is made to replace the assumptions with facts.

      If Charlie won’t respond, copy the CFO on your next email. If the CFO won’t respond, copy the CEO on the next one. What’s the worst that can happen?

      As for your commentary on the share price, I couldn’t disagree more.

      Only God knows where and/or when the share price is going to move. We can only make EPS calculations and feel confident in the value we are getting at today’s prices… we can NOT forecast when the price will follow suit. NEVER.

      Liked by 1 person

  4. Apologies – I didn’t mean EPS was astounding in the last post, I meant “Gross Profit” is astounding – 87% reported in Q4 and nearly 97% for the ViewSpot business.

    Like

  5. Just one more comment on this…..even assuming ZERO growth with ViewSpot, the most pessimistic outlook with all the other assumptions, the impact on the EPS is minimal. And there is unlikely to be any reduction in ViewSpot revenues since it consists of a quarterly license fee to use the platform and variable campaign fees of which there are about 20 – 30 per year.

    I still think I am doing something wrong 🙂

    Like

    1. I agree with this. Guidance calls for double digit growth and op margins. That’s a minimum of 10%, so THAT is the number I’d use, sans a call with management for elaboration.

      …and you STILL come up with a highly attractive valuation.

      #BeConservative #Patience #ResearchOverAssumptions

      Like

      1. Loving this debate!! “10%” is NOT “lower double digits growth” as stated by the company!! That is MINIMUM lower digits growth!!!

        Come on Mark!! You can do better than this!!!

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        1. if you MUST assume (make an a## out of you and me) then assume the worst low double digit worst is 10%. Then only positive surprises ahead in that category. if they do 11% or better then gravy.

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          1. No! No! No! “Lower Double Digits Growth” is NOT 10%. That Is MINIMUM lower digits growth. LISTEN to what you are being told as investors.

            I shall be as aggressive as Mark as teaching fundamentals!!

            And I am still waiting for specifics as to what of my bullet points are wrong.

            @Mark – be as aggressive as you want – I love it – but when someone challenges you have the courtesy to reply with specifics rather than nebulous vague responses.

            Like

          2. I’m with mpteahan. You’re wrong.

            I’ll elaborate on my next live. In the meantime, you can figure it out by contacting the company and having a discussion with them.

            Again, I’m not elaborating further.

            You’re a very enthusiastic investor and have a bright future ahead of you IF you learn how to be less impetuous and more precise.

            In the meantime though, let me be clear… YOU ARE WRONG on this.

            (NOT an opinion; end of discussion).

            Like

  6. I am not the same “anonymous” who posted that last question. I am the “anonymous” who is posting factual analysis and waiting for an answer from Mark about which of my bullet points are wrong.

    Like

      1. Easy to fix the anonymous posting issue. Either disable that ability (if you can) or quit responding to them unless they have a unique user name. That is what I would do. No offense to the anonymous posters out there, but if there were 5 different users posting as Mark Gomes you would find that annoying.

        Like

        1. I think that addressing low quality/lazy posts with filtering is far more important (whether it be from anonymous or registered users). Maybe adding a list of forum posting rules could help cut down the spam and save Mark some time.

          Like

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