Today we’ve got a teaser pitch for a low-priced tech stock to dig into for you — the ad is for a relatively new “back end” newsletter from Jim Pearce at Investing Daily called Breakthrough Technology Profits (not to be confused with Breakthrough Technology Alert, which is an Agora publication).
Breakthrough Technology Profits will set you back $3,000 a year if you’re so inclined, which is high enough that most Gumshoe readers probably wouldn’t lightly commit to a subscription, but does Pearce indeed have some secret idea that’s worth that kind of money? Let’s sort through the clues and see what he’s hinting at, then you can decide for yourself.
That’s what we do in a nutshell, by the way — just let you get a head start on understanding what the pundits of the financial world are selling. Charging someone $3,000 by tantalizing them with a secret stock that you think will have huge gains means investors face a real headwind in their effort to think rationally (if you paid $3,000 for an idea, your brain will do almost anything to convince you that it was a wise decision… which means you’ll be hugely tempted to buy the stock, even if you would have called it a terrible idea a week ago). If you know the stock up front, and didn’t subliminally commit to it by paying for a newsletter, then maybe you can think rationally about whether or not the newsletter sounds appealing, or whether the stock is worth further research.
So what’s that secret stock? Here’s part of the lead-in from the ad:
“The tiny $4 stock I’m going to show you today is flying so far under Wall Street’s radar…
“Only three—unknown—analysts are covering it.
“And since big name investment houses rely on analysts to turn up new opportunities for their wealthy clients…
“It means this tiny company is virtually invisible to investors.
“In spite of the fact that it’s about to go public with a piece of news that will send share prices soaring.”
Pearce says that this neglected company operates in a “micro industry” that no one pays attention to, and it won’t become a world-dominating company, but that these ignored investments can be hugely profitable…
“They’re neglected. Ignored. Or even hated.
“Until something sparks an interest in them.
“And all hell breaks loose with their share price….
“The same scenario I just described is about to play out with a tiny $4 company.”
So what is this company, and what’s the industry? Here’s a bit of hinting:
“The machines these micro-businesses use to make money have been around since the 19th century.
“And since that time, there hasn’t been much in the way of innovation.
“They make their owners money the same way they always have… collecting a small fee of around $1.21.
“But that all changed the minute this tiny company’s invention was released.
“It radically alters the way these machines work…
“And allows the micro-businesses that install it to instantly multiply every $1.21 they collect—into $1.60.”
He refers to these as “toll-booth” companies, referencing TravelersBox and Coinstar… and those are pretty good comparators because what Pearce is really talking about (though he doesn’t use the words… have to keep a secret, after all!) is vending machines.
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Well, yes, but not really — he’s not talking about vending machines, he’s talking about the cashless-payment revolution finally taking over the vending machine market, which to date has been the last vestige of the dollar coin.
But I’m getting ahead of myself. What’s the company, and do we get some specific hints that will allow the Mighty, Mighty Thinkolator to ID it for us?
Here you go…
There’s been insider buying, apparently:
“Insiders are so sure of the outcome, they’re not only sitting on an immense number of shares…
“They’re paying 15% over market prices to snap up even more.
“It’s hard to blame them.
“Their company is only days away from making an announcement that will instantly put it on the radar of investors everywhere…
“And unleash an $87 million windfall to shareholders in the process.”
That’s the May 11 date Pearce hinted at in his headline, by the way.
And we get some numbers that should help:
“… its device is so effective at increasing revenue it’s been installed on 469,000 machines that show up everywhere from train stations and shopping malls…
“To parking lots and golf courses.
“They’re so plentiful in fact, I can almost guarantee you’ve stood toe to toe with one in the past 30 days.
“And if you haven’t, odds are you will soon. Because this device is about to show up on ANOTHER 85,000 machines in the coming months.
“Bringing the total to 554,000 installations.”
And we learn that last year’s revenue grew to $77.4 million, from $58.1 million the year before. And Pearce thinks that institutional investors have been ignoring the stock because the company isn’t profitable… but that is about to change:
“… a meeting has been scheduled just days from now—and by the time it wraps up—I fully expect the world to know what my team figured out through months of research…
“This tiny company has turned a profit.
“That’s right. The one single thing that’s been holding this $4 stock back from hitting the radar screens of Wall Street analysts everywhere is about to disappear.
“You see, for years this company struggled to grow to the point where all those tiny slices of spare change added up to more money than it cost to make the devices… and keep the lights on.
“But our research shows it’s finally happened.”
So who is it? This is USA Technologies (USAT), which supplies what they describe as the “complete solution for unattended payments” — which, in practice, mostly means that they connect vending machines and kiosks to digital payment networks using their ePort terminals, the kind of thing you’ve probably used if you’ve ever used your credit card or Apple Pay to buy a bottle of Coke or a Snickers bar from a vending machine. They are, apparently, the market leader with about 300,000 machines that are NFC-enabled (that’s the contactless payment chip in your iPhone, also in some credit cards), and their latest investor presentation indicates that they believe themselves to be at an inflection point where their installed user base growth is going to start creating profits.
And yes, in case you’re double-checking those clues, the specific numbers in the ad do match up with that presentation from USAT, which you can see here. They did see transactions in their network of $584 million in the last fiscal year, and they expect to reach $1 billion this year… and that did turn into $77.4 million in revenue for them last year (their goal is $95-100 million for this year).
That May 11 date is presumably Pearce’s estimate of when they will release their quarterly earnings — which is probably just about right, it hit on May 12 last year and May 11 in 2015, but I don’t know if they’ve actually announced the date. And they may well report a profit, though it wouldn’t be the first time — they’ve had a few profitable quarters over the years, including last quarter (their net income last time out was $233,000, which comes out to a penny per share), though sustained profitability has so far eluded them.
Will it work out well for USAT? I have no idea. They are growing fairly nicely, but that’s been true for a decade or more (they’ve generally doubled their revenue every three years since 2003 or so, but have been losing money for about 20 years). It’s an interesting story, and they seem to have found a solid niche in providing e-payments for vending machines and self-serve kiosk businesses, and there’s certainly still a large market in upgrading the older generation of vending machines if the operators are willing to make those capital investments, but I’d have to really dig into the story to make myself comfortable with the potential. The margins have been generally getting a little worse over the past four or five years, not better, which means there has to be some future story to make it compelling… just continuing the trend they’ve been on doesn’t seem like it would be enough to dramatically improve the income statement.
The increase in revenue that operators can achieve from going cashless is real — as with other businesses, people who buy from vending machines using their phone or their credit card do buy more than folks who use cash, that’s where Pearce’s “turn $1.21 into $1.60” language comes from, that’s the number USAT reports as the increase in the average purchase for cashless vending customers, so I guess that’s where the potential lies… that and the trend toward automation and self-service retail.
Whether or not USAT will be a dominant player into the future in this segment, and whether they have finally reached a level of revenues that will let them generate a consistent profit, I have no idea. The company seems to be in decent shape at the moment — they are either profitable or close to it, they don’t have much debt (they do have convertible preferred stock outstanding, it trades at USATP and QuantumOnline indicates that they haven’t ever paid their distribution, though the income statement does indicate a preferred dividend has been paid), and and they seem to have enough cash to keep the wolf from the door in a bad quarter. I’d be surprised if they shot up dramatically in short order, or if earnings of a penny or two per share were enough to get investors feeling lusty about the stock, but they have been moving in the right direction recently.
And I’ve run out of my small reservoir of knowledge on this stock… which means it’s time, dear friends, to pass the mic back to you — what do you think? See the potential for USAT to take that leap into profitability?
P.S. If you’ve tried a subscription to Breakthrough Technology Profits, please click here to let your fellow investors know what you think.