What’s Basenese’s $3 “Buy LEO” Pitch About?

Checking in on Micro-Cap Advantage's tease of a "conservative" potential for 3,906% gains

By Travis Johnson, Stock Gumshoe, March 31, 2021

Here’s the lead-in from a new Lou Basenese ad that got a lot of our readers asking questions:

“URGENT BUY ALERT:

“America’s Leading Technology Analyst Says Buy “LEO” Now!

“This tiny company is poised to transform a $2.7 Trillion market with the single flip of a switch.

“Its groundbreaking technology is already being used by thousands of customers across the globe, like global oil giants Halliburton and Petrobras — with many more on the way.

“And because its stock trades on a ‘secret’ stock exchange — for less than $3 per share — it’s gone completely unnoticed by Wall Street.”

Tiny company… $3 share price… hot “story” area (LEO means Low Earth Orbit, which is the orbit used by the new waves of broadband-providing satellites being launched by Starlink and others)… and a “secret” exchange? What more could we ask for?

Well, we could also throw in the “stick it to the cable company” spiel, something that is almost always rolled out whenever we get a pitch about “space-based internet” — people hate their cable and telecom providers, so the dream that somehow space internet will be cheaper and better always gets attention. This is from the order form:

“By this time next year, the ‘Big Three’ cable companies — Comcast, Verizon, and Charter Cable — could be out of business…

“Not only that, but you could be hundreds of thousands of dollars richer. All thanks to the decision you’re about to make today.”

We’ve seen those spiels ever since the first “Halo-Fi” and other satellite broadband pitches started rolling several years ago — and the promise has also been of a mythically cheaper offering (Ray Blanco always used $7 a month in his teases)… though we should note, of course, that so far prices for the initial products, like Starlink, are pretty comparable to cable broadband (about $100 a month, plus you have to shell out $500 or so for the equipment). Perhaps as Starlink and others grow there will be more price competition, but the main advantage is in reaching more people whose only other option is slow DSL or super-expensive satellite internet from Hughes, not competing with cable and fiber connections in well-connected areas. Comcast and Verizon aren’t going away anytime soon.

The ad is for Basenese’s Micro-Cap Advantage ($995/yr, 30-day refund period), and it uses some of the same themes as he did for his pitch of Gilat (GILT), a satellite equipment provider that he teased for his lower-cost Trend Trader newsletter last year (that one has worked out well so far, for what it’s worth). Here’s a little more from the ad:

“This Tiny L.E.O. Company Could Soon Dominate a MASSIVE Market I’m Calling: “Space-Net” ….

“The market I’m referring to is Space-Based Internet.

“In other words, the ability for consumers like you and me to get high-speed Internet access beamed directly to us… from outer space!”

OK, so we know the big-picture spiel — companies like SpaceX and Amazon and Telesat are building massive constellations of low-earth orbit satellites, and those satellites will provide broadband connections for people in remote areas, who have no access to fiber (or even cable) broadband. That will make money for the equipment makers, we’re told, and certainly there’s been a big run on almost anything space-related over the past year… so which little player is Basenese teasing today?

These are our clues:

“… clients like global oil giants Halliburton and Petrobras are paying for its technology already.”

OK, so that indicates it’s probably some kind of communication technology for ultra-remote locations — HAL and PBR have crews working on hugely expensive oil projects that are hundreds of miles from any civilization. What else?

“… named as one of the 50 best-performing companies on the “secret” stock exchange it trades on.

“Profit Magazine dubbed it one of the fastest growing companies.

“On top of that, thanks to a new product it’s poised to launch, this company could soon become the ‘linchpin’ to a massive $2.7 trillion market.”

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We hear that “linchpin” word a lot in these kinds of teasers (the Oxford Club folks used it over and over for Inseego, for example) — it conjures up a huge high-tech global system that can only work through the use of one particularly little widget that our secret company provides… and that’s not true. $2.7 trillion markets are never dependent on a single provider or a single source, so get that out of your head. Even Apple goes far out of its way to make sure that they’re not stuck with single-source providers for chips and parts for the iPhone, and that’s “only” a $200 billion market.

Still this is apparently a tiny company, and you don’t have to be a “linchpin” to have a valuable product or service to sell. What else do we get by way of clues?

“… even if the big telecom giants were to get into the Space-Net market…

“They’d very likely become customers of this tiny L.E.O. company.

“… it produces a key piece of technology that, as far as I know, is unlike anything else on the market today.”

OK, so it makes something… what? Turns out, it’s a special kind of antenna. More from the pitch:

“More specifically, this company produces the antennas that allow you to access Space-Net’s high-speed internet.

“You see, without an antenna that can connect to your computer, there’s no way for Space-Net satellites to beam Internet or phone access to you.

“So, these devices are absolutely critical to Space-Net’s success — as I said earlier, these devices are the “linchpin” to the entire Space-Net industry.

“And this company’s devices in particular, are PERFECT for Space-Net…

“That’s because its antenna system is ultra-portable…

“It can fit in a standard carry-on suitcase….

“And it’s also one of the only devices in existence (that I know of) that has built-in “Auto-Acquisition Controller Technology” — or AACT for short.

“AACT allows one of these ultra-portable antennas to be set up — and to start receiving broadband internet via satellite — with a single press of a button.”

OK… that narrows it down a lot. And he says this product already exists, it’s not some hypothetical project… there are “thousands of them” being used now.

Other clues?

We’re told that it’s “ontario-based” … and he shows a photo of one of the little backpack-carried satellite dishes, as well as an image of larger truck-mounted devices being used to deliver cell signals in Japan after the Fukushima disaster. And there’s apparently something new in the cards as well:

“… this company already produces a portable Space-Net antenna…

“It’s one of the smallest products on the market…

“It can fit in a backpack and be mounted on a home, an office, a public building…. anywhere….

“In order to get high-speed, affordable and reliable Internet access to everyone on earth — no matter where they are — we’ll need a different type of solution…..

“… this tiny company I’ve been telling you about is on the cusp of launching its most groundbreaking antenna yet…

“Essentially, it’s a modular antenna system that’s so small and thin, it could literally be mounted anywhere!

“From a car, to a train, to the top of an airplane.”

And finally, we get the typical wild (but called “conservative”) projection about this tiny company taking “just” 5% of that crazy $2.7 trillion market for global internet access (stop laughing now, we mustn’t be rude):

“But let’s conservatively estimate that it ends up capturing 5% of the revenue flowing into this space…

“And to be even more conservative, let’s say the company focuses strictly on the U.S. market for now…

“Well, the U.S. market is worth $27 billion annually.

“So, if the company captures 5% of it, it would bring in about $1.35 billion in sales per year.

“(NOTE: If this company lands a contract with Musk or Bezos, it’s highly unlikely it would ever manage to stay that small, but caution never hurts when setting a profit target.)

“Next, we’ll multiply those projected annual sales by the average Price-to-Sales Multiple for similar satellite and communications companies.

“(NOTE: Using industry multiples is a conservative way to place a value on a company based on its revenues.)

“The average multiple for similar companies is roughly 4x sales.

“And when we multiply 4x by a potential $1.35 billion in annual sales…

“We get a projected value of $5.5 billion.

“That’s a 39-fold gain — 3,906%, to be exact — from a single investment…

“Good enough to turn $1,000 into $39,060.”

That’s not going to happen, at least not anytime soon. There are dozens of much larger companies in the satellite equipment market, and most of them are working on steerable antenna systems. A small maker of antenna systems is not likely to take 5% of total US broadband spending, or even 5% of total capital investment in the broadband industry (the four biggest US telecoms spent a total of about $50 billion last year on capex, just for some context).

And, to be fair, Basenese does include his qualifiers:

“First, these are just projections — not guarantees. As I mentioned before, nothing in life is guaranteed.

“Second, while I’ve done my homework here, it’s important you do yours, too. Never invest more than you could afford to lose in this speculation.”

Those potential gain numbers do give us some more clues, though — that means this is a genuinely tiny stock — a $3ish share price, and if gaining 3,906% gets us to $5.5 billion, that means it has a market cap somewhere in the $100-150 million range.

So who is it? This is, sez the Thinkolator, little C-Com Satellite Systems (CMI.V in Canada, CYSNF OTC in the US). And yes, it has shot higher in recent months as part of the newfound space enthusiasm among investors, and probably because of Basenese’s attention (it doesn’t take much attention from new investors to move a tiny and illiquid stock like this), but it’s still near $3 — it’s at $3.20 in the US at the moment.

And yes, as teased, PROFIT magazine did list them as one of Canada’s fastest growing companies… though as far as I can tell, the last time they were featured on that list was 2014.

And I suppose some folks would call the Venture exchange in Canada a little bit obscure, particularly if you’ve never dabbled in Canadian junior miners, but it’s certainly not “secret.”
As with many Venture-listed stocks, the trading volume on the OTC markets in the US is actually often higher than on the home exchange in Canada — though if you are interested in buying it’s worth being patient and using limit orders. (It’s quite illiquid everywhere, with only $100,000 or so worth of shares traded in a typical day, and usually such stocks surge a bit with any attention but then drift back down when investors’ eyes move on to the next shiny object).

This is what the company’s past decade looks like in chart form — that’s the share price in blue, revenue in red, and net income in orange:

CMI Chart

And to reinforce the idea that this has been a small and pretty stodgy stock for a long time, they have been profitable for decades, often with a single-digit PE ratio until a few years ago (it’s much higher now), and they actually pay a little dividend. They have grown the business over time, but it has been in fairly gradual decline over the past decade, their peak sales year was 2011 and revenues are down about 60% over the past two years.

So if there’s something exciting coming, it’s not in the income statement yet. They reported a couple weeks ago and the headlines tell that story pretty well: “Revenues decrease by 53.8% to $6,455,633; Company maintains quarterly dividend payout – for 39 consecutive quarters.”

Basenese’s photo in his pitch is even from one of C-Com’s press releases, the one announcing their fulfillment of a $3.4 million order for iNetVu Motorized Manpack Antenna Systems, which will be used for “disaster management and cellular backhaul.” That press release also confirms the R&D that C-Com is doing for potential future “flat panel” satellite antennae:

“C-COM is in late-stage development of a potentially revolutionary Ka-band, electronically steerable, modular, conformal, flat panel phased array antenna. In cooperation with the University of Waterloo, C-COM is engaged in the design of this unique antenna with the intent of providing low-cost, high-throughput mobility applications over satellite for land, airborne and maritime verticals.”

I’ve not looked at this one before, but if you want to start to get a handle on it you might start with their investor presentation — they do talk about their leadership in mobile satellite antenna products (those backpack things, presumably useful for the military and oil exploration and such… and for disaster areas), and they talk up their “highly disruptive electronically steerable phased array” antenna, which is what Basenese pitches as the potential game changer, a flat form antenna that could be built into a plane or boat without using a dish. That’s actually very similar to what Gilat is pitching as their latest product, though I assume Gilat is much further along in that area (they actually have customers, not just R&D).

So there is certainly hope that they can grow beyond their current position as a meaningful provider of portable iNetVu satellite antenna systems for remote work projects, disaster relief and temporary installations… and maybe they’ll break through in a meaningful way with their current phased array flat-panel antenna testing, though that’s much more speculative. They have the cash to sustain their small dividend (about 1.25%) and their R&D projects, and even after the big drop in sales last year they are still profitable, so the company won’t likely disappear… but there is certainly plenty of risk that their business will keep shrinking, though it’s also possible that hugely successful results from their flat-panel antennae or some big government orders could perk them up nicely from here (that’s the nature of a tiny stock, small bits of news can make a big difference).

I’m not terribly interested in this little equipment provider, and even if it has some appeal to you I’d hesitate to chase the shares after this surge of space enthusiasm in the markets. And while every satellite equipment company likes to name-drop Elon Musk, I’d say there’s almost no chance that C-Com will be involved with the large LEO networks in any meaningful way (Starlink and the others are building their own antennae and ground stations, and there doesn’t appear, at least to this layman, to be any single patented antenna design that gives anyone control of the market), but I certainly don’t know where the stock is going in the next six months.

Maybe I’m being too kind, or too cynical, but that’s where I come down with my money at the moment — I’ll check back in at this one at some point, but for now it will have to take over the world without me. Your opinion may differ, of course, and maybe you know more about the satellite equipment world than I do, or see great things ahead for C-Com — either way, please do let us know what you think with a comment below. Thanks for reading!


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