Special News Alert: TPCS, VTSI, SMSI

As always, be sure to read my disclosures / disclaimers below. Most notably, I do not encourage or recommend for anyone to follow my lead on any stocks listed here or otherwise, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article. Cheers.

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I’ll discuss these items in greater depth on Stock Talk LIVE!, my regularly-scheduled YouTube show (Fridays @ 2PM ET), but wanted to give everyone a head’s up on some major news events of this week…

  1. TPCS TURNS PROFITABLE!! Wow. Easily the most exciting news I’ve seen among my picks this month. Tonight, in a report to the SEC, TPCS disclosed phenomenal preliminary numbers for their fiscal Q2 ended September (which will be announced on their earning call on Thursday).

    Revenue will come in around $8.5M with net INCOME of $0.4M. To be clear, I did NOT expect the company to achieve profitability this quarter. Then again, nor did I expect the Ranor division to deliver 39% gross margins in the prior quarter. To pull of this quarter’s results, gross margins at their Stadco acquisition must have improved materially, signaling that the turnaround is happening as hoped.

    In other words, the company is now stringing together substantial surprises quarter after quarter.

    As a reminder, because of Stadco’s woes, TPCS was able to purchase the company for what I believe to have been a ~75% to turnaround value… and well, they’re turning around. In my opinion, this should unlock the value in TPCS shares, which can run at least 50% from current levels to catch up to the performance of its Defense-sector peers (including its customer, General Dynamic $GD, which recently hit a new all-time high despite the bear market).

    This is what happens when you have sure (i.e. Government) business in an uncertain economic environment.

    Beyond short-term implications, I continue to view this as a stock that can triple in value over the next year, assuming the market can at least stabilize.

    However, I also believe the stock can continue rising, even if the market doesn’t (as it did during the market crash of Q4 2018). Since calling for a Yellow Alert on the stock market in April 2021, the Russell 2000 has declined 18%, while TPCS has risen about the same amount, despite the selling pressure applied by Stadco shareholders earlier in the year.

    As discussed on Stock Talk LIVE!, I was part of a group that purchased their remaining shares a few weeks ago… and the shares have already risen 7% since that time. Looking forward, I expect the company to seek an uplisting in the coming weeks/months (which is usually a major catalyst for a stock), to be closely followed by getting added to the Russell Microcap Index.
  2. VTSI announces blowout bookings! Today, Virtra announced results for their September quarter. The bad news is that a less-than-expected amount of their backlog turned into revenue during the quarter, resulting in a revenue miss.

    This pressured the stock in after-hours, but IMHO that was clearly the wrong move, because bookings hit an astounding $16.7 million in the quarter, outpacing all expectations within my purview.

    Similar to SMSI, I can envision the after-hours weakness turning into regular-hours strength, as investors come to the realization that future business is worth more than past results (especially when a company with a leading position in a recession-resistant industry with a $30M enterprise value receives $16.7M of orders in just ONE quarter).

    Just to put things in perspective, I’ll remind readers that most public companies have $10-20M in buyout value just from the costs of being a public company. If acquired today, a valuation of 1x this quarter’s bookings would result in a share price in excess of $8… and I see much higher prices in the future of this company.

    This, like TPCS, is one to put in the closet and forget about. It’s a great business with little competition that isn’t going away. I accumulated long exposure today and plan to increase my exposure further if the opportunity presents itself tomorrow.
  3. SMSI participates at the annual Family Online Safety Institute conference. I won’t get into detail, since their presentation hasn’t been released to the public yet, but it’s clear that SMSI is an entrenched member of the Family Safety industry, which is growing rapidly. Their attendance simply adds to the momentum built after last week’s earnings results, which were disappointing on the surface, but still attracted investors (due to its low valuation and imminent launch of T-Mobile’ ready to start’s digital marketing campaign).

    It’s been a long wait, but the math has only become more attractive this year. The company has a $100M valuation, but $200M of investments into its family safety platform (which will be rolled out by every major carrier in the U.S. in the coming months). Plus, they have $200M in tax assets and the ability to achieve profitability at will, via expense cuts (they have merely chosen to forego profitability in favor of investments to take advantage of what they — and I — view as a great investment in becoming the leader in mobile family safety).

More on all of this, plus your Q&A Friday!

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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.

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