SMSI: Yet Another Great Quarter

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

I’m having a busy week, so just a quick note here.

Wednesday, Smith Micro (SMSI) reported its third great quarter in a row. Revenue and earnings easily beat the Street (and my) expectations. I posted two videos to discuss 1) the results and 2) a preliminary update to my personal model.

Initially, the stock reacted poorly for two reasons. 1) The market opened sharply down on China trade war fear & 2) traders took their profits off the table from the stock’s two-month, 90%+ rise.

But sanity took over as savvy investors scooped up the shares, which rose 16.7% from its low of the day to its high. Personally, I’m happy that this is my largest position. Revenues are ramping and costs are under control, so earnings are finally positive and ramping at a rapid rate.

Technically, the stock recently experienced a golden cross and bounced off of support this morning. Once it pushes through $3.40, there seems to be a clear technical path all the way to $6+ per share.

To be clear, this is not a prediction. However, according to my personal operating model, I see plenty of justification for the shares to move toward (and beyond) those levels.

Thus far, I’ve been right. The shares have risen more than 150% since I’ve gotten involved. Despite that, I believe the company looks better positioned and more undervalued than its been in years.

I’ll likely go LIVE on YouTube tomorrow (Friday) around 12:30PM ET to review the results of the one-on-one discussion I had with management this morning, so follow me there and stay tuned.

 

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Disclosures / Disclaimers: 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.

18 thoughts on “SMSI: Yet Another Great Quarter

    1. Yes. Most of those were invitations to Live YouTube vids / outdated info. Just cleaning up the website.

      I also had old videos taken down to clean things up. Didn’t want low-view / outdated info out there. #Simplification

      Seems to be working on our stocks today 😂😂😂

      Like

  1. Hi Mark, any place I can find your updated model? I have been busy and finally went to look for it again as it was on here the day after earnings and now that post is gone. It had the edited transcript on and the SMSI model. Thanks for guiding me along in my journey.

    Like

    1. It’s here https://docs.google.com/spreadsheets/d/13FgsnKMHXIv2a7x3oIBxc7AXlFacUNWupL_3Div-9Pw

      Just remember, it’s a model, not a forecast. I have my own forecast model which I don’t share with the public to avoid any possible issues with the SEC.

      I’d love to help people more, but whatever people fed me to the SEC forced me to change how I operate. I can’t have even the appearance of something they might look at the wrong way. Hope you understand.

      StoryTrading can help you forecast it more accurately.

      Like

  2. Hey Mark,

    Thanks for all your contributions! You’ve been a great help in me finally realizing the light of true investing and me admitting my past mistakes! I’m still working on improving my skills in terms of reading financial statements and creating operating models but slowly getting there.

    SMSI is one of my first big winners — along with many others in our group but it’s still not going to get me to the point where I can fully retire. Luckily though my time perception has finally changed from the short term to long term (I don’t even mind holding things for years now!).

    But anyway I just wanted to ask you on how you went about investing when you first began — moreso in terms of portfolio management (please don’t take this as me asking for personal advice on my investments but just wanted to learn about your experience so that I could learn from it).

    I know you wrote before that you began with a small 2k investment and then just built that up. Did you go more heavy when your capital amount was small and then gradually reduce risk from there?

    Thanks again for your time. Best Regards.

    Like

    1. First, congrats and keep going. They won’t all be like SMSI and that will test your faith in fundamental research. Pass those tests.

      As for me… yes, I had a more concentrated portfolio when I was younger. $2,000 was a lot for me back then, but nothing I couldn’t rebuild in a few months with a little sacrifice.

      My only caution is to not use that fact to embolden your resolve in any specific pick. Judge each stock on its own merits (and risks). Then decide how much belongs there and don’t waver.

      Longer term investing can play tricks on you. While watching paint dry, visions can appear before your eyes, but we all know it’s still just a wall — boring, but part of something that gains value over time.

      Like

  3. Hey Mark,

    Just wanted to reach out regarding a particular pick I was looking into and actually having a bit of trouble piecing everything together.

    I’m not sure if you’ve ever of it but the company is called I.D. Systems — based in New Jersey. Company deals with IOT devices primarily dealing with industrial and logistics vehicles (trucks, forklifts, etc…).

    A quote from them:

    “I.D. Systems transforms the way organizations manage mobile business assets — like forklifts, cargo trailers, and connected cars. Our technologies control, track, analyze, and optimize hundreds of thousands of these assets all over the world. We help organizations be safer, improve efficiency, and cut costs.”

    The company sells both the software and the devices and even has a couple of big deals signed that should be ramping up now. Some of these companies include Walmart, Avis Group and Jungheinrich (3rd biggest forklift manufacturer in the world)… theres more but just some quick ones.

    Recently I.D. Systems acquired another company called Pointer Telocation which it worked very closely with in some of its deals. Pointer is actually bigger then even I.D. Systems. Here’s a quick look at the acquisition from their own slides:

    https://seekingalpha.com/article/4283854-d-systems-idsy-updates-acquisition-pointer-telocation-ltd-m-slideshow

    They’re set to finish the acquisition in October and rebrand themselves as powerfleet under the ticker symbol PWFL. They also acquired a few other companies recently and seem to be ramping up on those as well. It’s hard to list out all the details here but I’ll try to get to a better summary when I get a chance.

    Anyhow it seems very difficult for me to wrap myself around all the numbers and logistics with this acquisition looming. Any hints/tips on how I should go about the research. What are some things I can look for that could help?

    I really think this could be a great pick but I don’t have any models/numbers to support that yet — so i’m avoiding my bias and not making any irrational decisions based on just hunches and what I read in the earnings transcripts.

    Would appreciate any help you can provide. Thanks a bunch.

    Best Regards,
    Saif

    Like

    1. Hey Saif, I appreciate the lead, but as you know I don’t take requests in the traditional sense. I have a huge queue, so without substantial evidence / justification to put it higher in the queue it has to go to the back of the line.

      Feel free to let me know if you gain any substantial evidence that this is one we need to move on. We need more than a hunch. 👍🏼

      Like

      1. No worries definitely understand — I’ll give it my best to figure this story out/look for others in the meantime. Here is what I did find out — its not a full model yet but at least gives us something to work with till that acquisition is completed. Just posting it here in case anyone else is interested as well.

        Notes on I.D.Systems (Looking to rebrand to Power fleet and trade under PWFL in October):

        – Each product sold comes with its own recurring revenue stream. Typically 5 years minimum.
        – 1st year expectation post merger: — of the $150 million in revenue, 55% will be high margin recurring revenue.
        – Adjusted EBITDA expectation 2020:
        — 15 to 20% of total revenue. (22-30 million in EBITDA)

        How company would look at $200 million in revenue (goal is to hit that within 3 years):

        – Growth expectation is about 15% yearly (revenue starting at 150 million with the merged entities in 2019)
        – 2020 revenue expectation = 173 million (estimated with 15% growth rate)
        – 2021 revenue expectation = 199 million (estimated with 15% growth rate)
        – 2022 revenue expectation = 229 million (estimated with 15% growth rate)

        Long Term Goal:
        – Target model expectation — Management guided for 2-3 years (hitting $200 million in revenue)
        – 120 million of revenue expected to be high margin (60%)
        – gross margins/profits to be about 55%
        – 50 million adjusted EBITDA at 200 million in revenue (or 25%)

        Post merger:
        – 29 million shares outstanding
        – 35 million shares (fully covered) – 6 million preferable convertible at $7.32
        – 30 million in debt
        – 15 million cash

        Investor Presentation today presented the story very well:

        https://ir.id-systems.com/news-events/press-releases/detail/336/i-d-systems-to-present-at-the-8th-annual-gateway

        Again — not recommending the stock to anyone here, just gathering some numbers/facts that i’ve researched. Once the merger is completed, i’ll throw up a model and also maybe even write out a whole story!

        Best Regards,
        Saif

        Like

    1. Not picked up by other carriers. But updated the app so you can buy a tracker from Sprint and it will now work on a phone that uses Verizon, ATT etc. But its still just Sprint selling the tracker

      Like

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