Another weekend, another “you want to jump on this immediately on Monday morning!” email from the Motley Fool. Thankfully, this isn’t a microcap name they’re teasing, and they’re promoting a high-cost service, which means there won’t be 10,000 people rushing to buy today… so there’s probably no reason to rush, and we can take a moment to think it over.
But first, of course, we have to identify which stock it is they’re talking about.
The ad came in starting on Saturday, and the part that caught our readers’ attention was that ’85X potential’ bit, naturally enough. So what’s the spiel?
They’re selling subscriptions to one of their “Extreme Opportunities” services, which are focused portfolios designed for a particular trend — this one is called Augmented Reality and Beyond, so I assume that this is an updated name for the Motley Fool Extreme Opportunities: AR service that they started pitching back in 2019. They’re currently charging $1,499, nonrefundable.
This service was talked up under Eric Bleeker’s name a couple years ago, but the headliner today is Jason Moser, whose name I don’t think I’ve come across before. This is what the ad says…
“I’m so excited to share that earlier this morning, my good friend Jason Moser released a stock recommendation to members of Extreme Opportunities: Augmented Reality and Beyond that has never before been recommended by any service at The Motley Fool.”
And then we get to the best part, the clues they drop about this new recommendation — here’s the section where they throw in our hints:
“There’s lots to be excited about this stock….
“Small and underfollowed (with a market cap less than 1/150th the size of Amazon), but we think it has simply incredible upside potential….
“This stock’s first VR foray targets a growing niche experts believe could be worth $46 billion — 85x the company’s annual revenue….
“Multiple paths to massive growth. In addition to the huge VR opportunity, the company estimates that they still have between 80% and 90% of market share to seize in their core markets – so, plenty more opportunity to unlock. I love companies with multiple pathways to grow, because when they fire on all cylinders they can drive simply incredible results.”
If the clues are at all accurate, then these are the numbers we’re dealing with — they say this stock is “less than 1/150th the size of Amazon,” and “size” would generally mean “market capitalization” to the Motley Fool. So that means the market cap is somewhere in the $0-$10 billion range — probably between $8-10 billion, since they could have said “less than 1/200th” under $8 billion. It’s hard for me to call $10 billion “small,” but I guess everything is relative.
And we’re told that the “growing niche” that has something to do with virtual reality could be worth $46 billion… and that this would be 85X the company’s annual revenue. Assuming they mean the company’s current annual revenue, that would mean revenues as of now are in the neighborhood of $500 million, I’ll give it a pretty broad range of $450-550 million.
And the Fool says they “have between 80-90% of market share” to still be seized in their core markets. And that it has not been recommended by the Motley Fool before.
So what are we dealing with here? The best match for those criteria (sector/AR focus, market cap and revenue) is Penumbra (PEN), which is a $9.4 billion company today with trailing revenue of $539 million over the past four quarters. It’s a medical device company, primarily known for various catheter-related products for treating strokes and blood clots, and it is not yet a virtual reality stock, not in any real way (none of that $539 million in revenue is from virtual reality products)… but they do have a new virtual reality product that’s starting to gather some steam, and they intend to build it into a major line fo business. It’s also a stock that as of last month, at least, was not a Motley Fool recommendation, per their disclosures.
And the stock is also a “battleground stock” between shorts and longs, for those who are excited about “high short ratio” stocks — it went public about five years ago and has had two points in its relatively short life when the stock had a short ratio above 20%, both back in mid-2019, when it was being criticized by short sellers as a one-trick pony that was losing market share (Spruce Point’s report from July, 2019 sums up that short case), and more recently, just a couple months ago, when they got hit with fraud/dangerous product allegations from another short seller (mostly Quintessential Capital Management, positing that their scientific research was authored by a fake person, which Penumbra refuted), which was a really odd exchange… but it also requires some thought from investors, because there was actually a safety concern with one of Penumbra’s new products, and that resulted in a voluntary recall of that product just a week or two later.
I don’t know anything about Quintessential Capital Management, but they also did get Marc Cohodes on board with a short attack on Penumbra before this recall, focused mostly on the “dangerous product” allegation, and he’s certainly not infallible but I’d never enjoy being on the other side of one of his trades. He’s a bulldog. I don’t know if he’s still short, or if the recall and the impact on the stock price was his objective, and I actually don’t even know if his short/fraud allegations went beyond that one product which was recalled.
The company primarily sells a variety of systems and parts for vascular and neurological procedures, with stroke treatment the single leading product area but some meaningful growth in their various clot-removal devices. It was one of those devices, their latest Jet 7 Extra Flex catheters, that they recalled. If the Motley Fool is pitching this as a Virtual Reality play, it’s because of their REAL system, which is primarily being used right now for rehab for stroke victims but has, they believe, substantially more potential.
Their core business area of catheters and clot removal is a very competitive field, they did create some strong market share in niche areas through innovating new products, and they still see themselves as being nimble innovators — they think their advantage, to at least some degree, is faster innovation and an established pattern of rapid product development to improve care — some of it has been new product breakthroughs, some gradual improvement on existing p