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What’s that “85X” Virtual Reality Pick Teased by the Motley Fool this Morning?

Sniffing out a teaser pick from Motley Fool Extreme Opportunities: Augmented Reality & Beyond

By Travis Johnson, Stock Gumshoe, February 1, 2021

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 products.

And as far as that bit about having a lot of market share yet to take, that’s a squishier clue but we do have a match there as well — this is a quote from the CEO’s comments at the JP Morgan Healthcare conference last month:

“We have come a long way already, but we have a long, long way to go. We still have 80% of the patients suffering from ischemic stroke to help. Over 90% of the vascular thrombectomy patients to help. And almost 100% of the patients that can be helped with our virtual reality technology.”

And he also noted that they think they can reach $1 billion in revenue by 2023… which would be almost 100% growth from last year.

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The shares have leapt back from those recall lows in December thanks largely to the strong fourth quarter revenue that they pre-announced a few weeks ago. There is a ~$10 million or so impact from the late-December recall, but they expect to hit revenue growth of 2-3% for 2020. That is obviously not what folks look for in growth stocks, but is pretty impressive given the huge impact that COVID-19 had on companies who make and sell non-pandemic medical products (and, of course, on sales forces and on manufacturing facilities).

So if revenue continues at the fourth quarter rate, the annual run rate would be about $690 million right now. Analyst estimates for the year are $650 million — there’s still a lot of uncertainty about COVID-19, and they’ve said that they’re not sure if they can provide guidance yet on the next call (which should be in about three weeks), they just don’t have much visibility into what the healthcare market will be while we work through hopefully just a few more months of severe COVID impact.

So if we go by those estimates, that would mean investors at $255 or so are paying a little under 14X estimated 2021 revenue… and it is widely expected that they will return to profit in 2021. They earned 98 cents per share in adjusted earnings in 2019, probably lost a little money in 2020, and analysts think they’ll be back at 73 cents in 2021 and $1.42 in 2022.

Those estimates are still probably significantly impacted by COVID, since nobody wants to really go out on a limb and make bold estimates about a return to where they were (at the beginning of 2020, before the pandemic, analysts were forecasting $1.25 in earnings per share for 2020), and the recall of one of their products in December is likely reason for analysts to add a little more caution to their outlook, despite the strong revenue “beat” in the fourth quarter last year. Their latest products have seemingly put to bed the “one trick pony” arguments from 2019 and the assertion that they would be losing market share, particularly given the nice bounceback in the fourth quarter… but as to whether there’s anything systemic or shady in the company to worry about, per Cohodes and QCM, or there was just a problem with one product that will soon be forgotten, I have no idea.

The Virtual Reality connection is interesting, and it is a priority for them, but there’s no real sense from the company about how long it will be before that has an impact on the income statement. That REAL business was launched to provide therapeutic treatment for stroke patients and perhaps also other kinds of therapies, with a headset and control tablet and a suite of therapeutic software, but they say more detail is coming later this year about their larger goals and vision for that in the future as they launch the product more aggressively… including the ability to do remote therapy and pre-loaded therapeutic exercises when the therapist is not in the room. It’s not a meaningful part of their revenue picture right now, so if you’re buying for that you’ll have to be patient, but it is fair to say that they’re focused on the VR therapy system as their third major business (joining the neuro and vascular businesses), so clearly they see it as a possible long-term growth platform. Whether that works or not, I dunno.

So there you have it… a Motley Fool “Augmented Reality and More” idea that is being pitched as a hot buy… if the Thinkolator is right on this one, the Fool recommendation could explain why the shares popped immediately at the open today, briefly hitting $275 right as the trading calendar turned to February, so perhaps that’s a bit of further confirmation if you want that. The stock now sits right where it was a week ago, though it had a wild week (up 20%+, then gave it all back), so perhaps it has also just been getting some Reddit-type attention as a possible short squeeze candidate, as are a few dozen other stocks to a limited degree.

And whether or not the Fool likes the stock is not really the point, of course — it’s your money, so the question is whether or not it’s a company you want to own. It’s been a rollercoaster in the past couple months, for sure, and my first impression is mostly just a combination of concern about the recall and whether or not Marc Cohodes is still aggressively short this stock, and a fairly high level of being impressed with the company at the JP Morgan conference, and thinking that analysts are probably being a bit too pessimistic with their outlook given the fourth quarter growth they reported. I don’t own this one, and it’s a long way from being a Virtual Reality powerhouse, but if you’ve got a perspective to share about it either way, well, feel free to let it loose with a comment below. Thanks for reading!

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nataimages
nataimages
February 1, 2021 5:59 pm

Your predictions about this stock are correct. They are pitching Penumbra (PEN)

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Dave
Dave
February 6, 2021 2:33 pm
Reply to  nataimages

FWIW Fidelity says stay away, but they’ve been wrong before.

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ronwill
February 1, 2021 6:06 pm

I don’t see any MF recommendations for it so you could be correct on this one. (But I only have a few of their services and not the AR one.)

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amitmomin
Member
amitmomin
February 1, 2021 6:08 pm
Reply to  ronwill

My friend have Motley Fool service and PEN is correct stock.

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mister bob
February 1, 2021 6:15 pm

Travis, I was curious if Ubisoft fit as a match (Gaming VR and AR) around 12 billion market cap. They have an exciting line up of video games, including teaming up with Disney to make the next Star Wars.

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mister bob
February 2, 2021 10:14 am

Awesome, I thank you. Reading through their new Star Wars partnership with Disney got me excited. But I don’t know enough about how to value the UbiSoft to invest in it.

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lotus_fantasy
February 12, 2021 11:56 pm

Hi Travis, Do you think its still a good entry point right now for PEN @ $278? Thanks!

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zookeeper1
zookeeper1
February 1, 2021 6:36 pm

Nicely done, Travis!

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youwannabet
youwannabet
February 1, 2021 7:10 pm

Travis, could it be ISRG, Intuitive Surgical ? Up until recently, I was a member of MF AR, and ISRG was one of the pics and am certain it’s still is in the portfolio.

Tracking of my combined MF AR and MF AI portfolio shows an effective annual return of 38% to date with current positions siting at 74.9% gain – excellent performance! These two services from the MF have been quite lucrative and I have easily recouped the membership fees. Several stocks that I would never have purchased on my own but have been very big winners for me. That said, once MF builds out a new portfolio, very few new stocks are added after that – maybe a couple more per year – so, I did not think it was worth continuing to pay the annual fee for these services since they are so narrowly targeted that there really are not that many excellent companies they can be added to justify the continued high annual cost, in my opinion. I can easily keep track of these positions on my own now and save some money. As a general rule, MF minimum hold time is 3-5 years to maximize gains so I got 1-3 more years to go on this batch of stocks!

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ddeids
Irregular
ddeids
February 1, 2021 8:04 pm
Reply to  youwannabet

But was’nt ISRG recommended in any of MF services ? Hard to believe, but could be possible.

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jeffrey furlong
Member
February 2, 2021 4:55 pm

So did Alex in the Communique

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ddeids
Irregular
ddeids
February 1, 2021 9:32 pm

Also, PEN is one of the holdings of MF

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basusubroto
basusubroto
February 1, 2021 10:52 pm

looks like Jakubowitz Law is filing complaint against about Jet 7 Xtra Flex safety. Is that why it slid further in the afternoon?

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wildbill21
wildbill21
February 1, 2021 11:15 pm

Hey I was right!

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Peter
Member
Peter
February 2, 2021 3:57 am

Speaking of AR and surgical/ medical devices and ISRG: TRXC is supposedly a strong competitor to ISRG and TRXC has market cap of only 573 Mill.

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bluemichigan
bluemichigan
February 2, 2021 5:45 am

Along with the buy recommendations, there are active short recommendations on PEN

Penumbra named a short at Marcus Aurelius, says company ‘cannot be trusted’ 12/28/20
PEN
Short-selling focused research firm Marcus Aurelius Value disclosed in a new report published on its site that the firm is shorting Penumbra. In its report, the firm said it believes the “Xtra Flex debacle is symptomatic of corrosion that likely has infected most aspects of Penumbra’s business” and that “Penumbra simply cannot be trusted by investors or patients.” Further, the firm calls Penumbra to “immediately disclose a complete list of all the core labs and consultants who have been involved in every trial that Penumbra has sponsored, collaborated on, or otherwise funded since inception along with a complete list of the specific payments made to these entities since inc

Quintessential Capital issues short report on Penumbra with $55 target »11/10/20

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elton
Member
elton
February 8, 2021 2:06 pm

Sounds like this one is gambling, not investing.

Thomas Booth
Thomas Booth
February 2, 2021 12:52 pm

Penumbra’s catheter has an active recall on its catheter with the FDA as of today; This does not bode well for their main source of income . Medical devices face many hurdles over the first 5 to 10 years they are on the market .

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sandyfeet50
sandyfeet50
February 2, 2021 1:00 pm

Penumbra is facing a recall as of today from the FDA for their catheters .

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drfrankenstein
Member
drfrankenstein
February 2, 2021 2:37 pm

Thanks Travis. I am have some familiarity with stroke management and I don’t think truthfully, their numbers should have been hurt that much by COVID. People still getting strokes throughout the pandemic in some populations even more so due to prothrombotic complications seen in COVID. Don’t know anything about the VR arm of their business but doesn’t sound like something overly exciting from where I sit.

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borne0fan
borne0fan
February 2, 2021 4:09 pm

Not certain, but I think it might be KOPN. Kopin makes tiny AR/VR adaptive gadgets that might be great for exploring the metaverse. Or at least a networked game.

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timcoahran
Irregular
February 3, 2021 1:47 am

Hey Trav-
I really enjoyed the more detailed description of the inner workings of the Thinkolator on this one!
(PEN)

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youarethelight
youarethelight
February 3, 2021 8:02 am

Hey Travis…I have not been here for awhile, but I’ve got a question for you…I noticed a couple of days ago that Cathy at ARK report sales of NNDN, and several others. This was interpreted by one of our friends here to be a good thing. 300,000 shares, I recall, meaning that they added to their position. can you clear this up for me and others???
Thanks…I still love this service, and your many brilliant insights!

, but really, this is Michael B. in Fountain Hills, Az

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Dave
Dave
February 6, 2021 2:07 pm

DJIA: 31,148.24 +92.38 (0.30%) | NASDAQ: 13,856.296 +78.553 (0.57%) | S&P 500: 3,886.83 +15.09 (0.39%) —Markets closed
Print Format Change Text Size:
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Kessler Topaz Meltzer & Check, LLP Announces Investor Securities Fraud Class Action Lawsuit Filed Against Penumbra, Inc. – PEN
BY GlobeNewswire
— 7:46 PM ET 02/05/2021
RADNOR, Pa., Feb. 05, 2021 (GLOBE NEWSWIRE) — The law firm of Kessler Topaz Meltzer & Check, LLP announces that a securities fraud class action lawsuit has been filed in the United States District Court for the Northern District of California against Penumbra, Inc. ( PEN
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) (“Penumbra”) on behalf of those who purchased or acquired Penumbra common stock between August 3, 2020 and December 15, 2020, inclusive (the “Class Period”).
Deadline Reminder: Investors who purchased or acquired Penumbra common stock during the Class Period may, no later than March 16, 2021, seek to be appointed as a lead plaintiff representative of the class. For additional information or to learn how to participate in this litigation please contact Kessler Topaz Meltzer & Check, LLP: James Maro, Esq. (484-270-1453) or Adrienne Bell, Esq. (484-270-1435); toll free at (844) 887-9500; via e-mail at info@ktmc.com; or click https://www.ktmc.com/penumbra-inc-securities-class-action?utm_source=PR&utm_medium=link&utm_campaign=penumbra
According to the complaint, Penumbra is a global healthcare company that develops, manufactures and sells innovative medical devices for patients suffering from stroke and other vascular and neurovascular diseases. Until recently, one of Penumbra’s flagship products was the “Jet 7 Xtra Flex,” an aspiration catheter designed to be inserted into an affected artery, navigated to a blood clot, and used to suck the clot out of the patient’s body. The Jet 7 Xtra Flex was introduced to the U.S. market in July 2019 and quickly became a “growth driver” for Penumbra, a key source of new revenues.
The complaint alleges that in mid-2020, concerns about the Jet 7 Xtra Flex’s safety began to emerge. Despite the safety concerns, the defendants repeatedly assured investors during the Class Period that the Jet 7 Xtra Flex was “absolutely safe” and “not a product that has any possibility of needing to be recalled,” as Penumbra was taking all necessary steps to protect patients.
The truth regarding Jet 7 Xtra Flex’s safety was revealed to the market through a series of disclosures beginning in September 2020. Then, on December 15, 2020, after the market closed, Penumbra issued a press release announcing that it was issuing an “urgent” recall of the Jet 7 Xtra Flex because the catheter “may become susceptible to distal tip damage during use” which could lead to injury or death. Following this news, Penumbra’s stock price fell by 7%, from $188.82 per share on December 15, 2020 to $174.98 per share on December 16, 2020, a decline of $13.84 per share.
Penumbra investors may, no later than March 16, 2021, seek to be appointed as a lead plaintiff representative of the class through Kessler Topaz Meltzer & Check, LLP or other counsel, or may choose to do nothing and remain an absent class member. A lead plaintiff is a representative party who acts on behalf of all class members in directing the litigation. In order to be appointed as a lead plaintiff, the Court must determine that the class member’s claim is typical of the claims of other class members, and that the class member will adequately represent the class. Your ability to share in any recovery is not affected by the decision of whether or not to serve as a lead plaintiff.
Kessler Topaz Meltzer & Check, LLP, prosecutes class actions in state and federal courts throughout the country involving securities fraud, breaches of fiduciary duties and other violations of state and federal law. Kessler Topaz Meltzer & Check, LLP is a driving force behind corporate governance reform, and has recovered billions of dollars on behalf of institutional and individual investors from the United States and around the world. The firm represents investors, consumers and whistleblowers (private citizens who report fraudulent practices against the government and share in the recovery of government dollars). The complaint in this action was not filed by Kessler Topaz Meltzer & Check, LLP. For more information about Kessler Topaz Meltzer & Check, LLP, please visit http://www.ktmc.com.
CONTACT:
Kessler Topaz Meltzer & Check, LLP
James Maro, Jr., Esq.
Adrienne Bell, Esq.
280 King of Prussia Road
Radnor, PA 19087
(844) 887-9500 (toll free)
(610) 667-7706
info@ktmc.com

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John Hunter
February 6, 2021 5:57 pm

Guys found a goldmine. TSNP A new PayPal and more. Ticker soon to be HMBL

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Peter Z
Member
Peter Z
February 6, 2021 6:12 pm
Reply to  John Hunter

I started buying TSNP for 0.09 and 0.13.
On Friday it climbed to 1.68.
Problem now their market cap is already 5.4 billion. Seems a little high and I’m not sure how far developed their program/ app is by now, or how many people are even using it.

cloudiceberg
February 8, 2021 5:02 pm
Reply to  Peter Z

how did you find out about it at 0.09! amazing..

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big tuna
February 8, 2021 5:15 pm
Reply to  John Hunter

That’s the first time I’ve seen anything like this. Price Performance (Last 52 Weeks) 1,379,900.00% Not bad for a drywall company in Connecticut.

http://www.tesoroenterprises.us/index.html

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SoGiAm
February 9, 2021 1:19 am
Reply to  big tuna

$TSNP $ENZC $FORW $ALPP Best to ALL!!

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Scott E Shapiro
Guest
Scott E Shapiro
February 7, 2021 11:59 am

I wish when I read your article on “Another great recommendation by Fool, we think like AMAZON ” back in 2017 when you determined it was likely SHOP at $55 t and basically poopooing the Fool, even back then..hmmm, naysayer, had I NOT listened to you, my $2000 investment would be worth over $43,000 , SHOP is now over $1200. But I never bought it. Fool.

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Peter Z
Member
Peter Z
February 7, 2021 5:33 pm

SHOP had been recommended around $40 several years ago by some other stock picking service and I didn’t buy it because thought it was too expensive …

oldjohn
oldjohn
February 8, 2021 1:25 pm

Travis, you’re probably right about PEN. But the mention of AR got me remembering NEXCF, an AR company I bought into late 20018 and sold my last chunk of in Jan 21. Entry Price was 0.50 and I sold most of it at 1000% profit, last chunk at 850%. Wonder if you’d care to comment on this stock and if it might be worth getting back into. I have no memory of where I got this pick from but was probably a watch or tease from one of the Oxford newsletters.

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