A few readers have sent in questions about the teaser email Keith Schaefer sent out this morning… and he does weave a nice tale in his tease, promising more details tomorrow… so let’s jump the gun a bit and see if we can ID the stock, shall we?
Schraefer’s newsletter is the Oil and Gas Investments Bulletin, and we’ve covered it a few times over the years… but though I assume this will end up being a tease for his newsletter, it’s very much NOT an energy company he’s teasing this time. The headline of the free teaser article he released today was “My Greatest Winner of All Time Will NOT Be an Oil or Gas Stock.”
He tells the story of looking for a non-energy stock back in 2016, when he said there was “no bid for oil stocks,” and how that led him to build a large position (2% of the company) in a disruptive technology stock… in his words:
“I went looking to make money elsewhere — specifically, downstream — in search of innovation and disruption in the energy markets.
“What I found there was something very special — a microcap stock with a disruptive proprietary technology.
“Over the last couple years, I have been patiently accumulating… and I now own 1.7 million shares. That’s 2% of the company.”
That’s a big stake, even if it is a microcap stock… so who knows, perhaps he’ll even give the name away when he follows up this “tease” article — after all, he would stand to benefit more than most if the stock rose.
But in the meantime, it’s a puzzle for us to solve… so what clues do we find that we can feed to the Thinkolator? Here are a few:
“This company is hitting its stride. Revenue increases. Positive cash flow. Big Name Customers….
“The company has just signed major deals with multiple NASDAQ/NYSE listed companies. As a result the revenue growth from here is about to go parabolic….
“… these deals are not priced into the stock of this company. With next to no analyst coverage, The Market has no clue what is going on here.”
He puts a lot of weight on the fact that this company has deals in place with some giant and well-established companies — mostly because he says that validates their technology and proves that they are able to sell to big customers.
What’s the business? Inventory control — Schaefer says that we’re ready now for the “tipping point” for radio frequency ID (RFID) tracking to take the place of bar codes and other inventory control systems, after the failed attempts (led by Wal-mart) of a few years ago. More from the tease:
“Walmart was early, but not wrong.
“We are now at the moment when RFID will be the solution that saves businesses tens of billions of dollars.
“Since Walmart’s test, hardware costs of RFID have plummeted. And RFID tags and readers now work over wide areas–the challenges of accurately reading wide areas have been addressed.
“In the future we will recognize right now as the tipping point for mass RFID adoption.
“The microcap company that I’m going to reveal to you is right at the center of this tipping point.”
What other clues do we get? Schaefer talks about an $8 billion NASDAQ listed company that has installed this RFID technology in over 70 locations across the US — and says that over the past year, they “fixed” their inventory problems using this secret microcap’s technology and saw their share price triple.
He also includes a handy little stock chart of that tripling, which will be good to use in confirming the Thinkolator’s answer in a moment.
Other clues? We’re told that this $8 billion customer is just the beginning…
“In 2018 this microcap RFID stock got its foot in the door and then kicked it right off the hinges. Not with one big customer mind you… with multiple Fortune 1000 companies….
“… the largest RFID tag companies (the hardware in this business) on the planet are becoming partners and sales channels for my micro-cap RFID company.”
He also says that they have no need for additional financing, and drops one more hint about what he’ll “reveal” tomorrow:
“Here is what is coming:
“One – Details of the new business win that this microcap just announced with a blue chip behemoth that has a $300 billion Enterprise Value”
So what’s the story? Well, I’ve got your Thinkolator results, but we’ll ease into it for you…
The “$8 billion NASDAQ” company is Carvana (CVNA), which has given up some of those gains but is still up dramatically over the past year as they try to bring their new car-buying experience to more markets — they have about 35-40 physical locations where they process and prepare their inventory of cars for sale, though they do offer same-day delivery to 70 cities. They’re also opening up “car vending machines,” but the core of the business is letting you buy used cars online and then delivering them to your house, with free returns if you don’t like it.
I don’t know whether their agreement with a little inventory control software company had anything to do with the performance of CVNA stock over the past year, but maybe it played a role — Carvana did see their gross margin rise a little bit over the past year, and their inventory numbers seem to have improved a bit (days inventory outstanding and inventory turnover), but it’s a very young company that’s just building out its offering so I wouldn’t read anything into those quarterly numbers just yet. CVNA has been public for only about a year and a half, and they opened in their first market only about five years ago.
And the $300 billion enterprise value company that just signed a deal with this little tech provider is Anheuser-Busch (BUD), which, as was announced just a few weeks ago, will be implementing a RFID tracking system for the kegs in their Houston facility, and this little company is partnering with two others on that project — including Impinj (PI), the maker of RFID tags, and Velociti, a “leader in technology deployment and support services.”
The particular product Anheuser-Busch is using is GAME for RTI, which stands for Global Asset Management for Enterprises for Returnable Transport Items, and Keith Schaefer’s “little company” that sells that software is TrackX Holdings (TKX.V in Toronto, TKXHF OTC in the US).
TrackX is indeed a very small company, the market cap is about C$26 million right now (it’s up today, presumably because some other folks are sniffing around this free article and doing their own gumshoeing), and the shares trade at about 35 cents at the moment (Canadian), so Schaefer’s reported holdings (1.7 million shares) would be worth about C$600,000.
What does the company do? Well, yes, they do offer a software as a service (SaaS) solution for inventory management, using RFID. You can check out their investor fact sheet here, but this is how they describe themselves broadly:
“TrackX, Inc. is an enterprise asset management company deploying SaaS-based solutions leveraging multiple auto-ID and sensor technologies for the comprehensive tracking and management of physical assets. TrackX’s Global Asset Management for Enterprises (GAME) platform enables the IIoT by providing unique item level tracking, workflow processing, event management, alerting and powerful analytics to deliver solutions across a growing number of industries. TrackX delivers significant value to a growing list of Fortune 500 companies and for customers in industries such as transportation, beverage, brewery, healthcare, hi-tech, hospitality, mining, agriculture, horticulture, manufacturing and government.”
So this is another teensy stock, with an appealing business (software is always more compelling, just because it’s so dramatically scalable and therefore potentially high margin), but it’s also in a huge industry so I have no idea how their software compares or competes with other giants — if you just search for “inventory management software” you’ll pretty quickly find 50+ companies offering different solutions for different kinds of companies, so whether TrackX is just another company that has identified one solid customer (Carvana) and is trying to leverage that into a bigger business, or whether they have some actual advantage over the competition, I don’t know.
The numbers look decent so far — they appear to me to be somewhat capital-constrained, they have a decent gross profit and have been investing in selling, general and administrative expenses — presumably mostly a sales force and sales efforts — but they aren’t throwing tons of money at growth by aggressively increasing their selling costs. Whether that’s because they don’t want to be aggressive, or because they’re having trouble raising capital, I don’t know — if they were a Silicon Valley startup that got some venture capital interest, and investors expected them to have a broader market opportunity in this cloud software offering, it wouldn’t be surprising to see them spend 10X as much on a sales force and marketing push to try to seize control of their niche of the market.
That’s not happening, and it looks like they haven’t been selling more stock recently (until six months ago, they had been on a steady financing diet of selling about five million shares a quarter to keep the lights on), but they did just agree to borrow some money (at 10%+) to expand — they’re borrowing up to C$5.2 million over two years, which is about as much as as they’ve recently been burning through. So far they’ve drawn down C$2.6 million, we’re told, and can get the other half if they go EBITDA positive and have decent revenue growth in the next couple quarters. Whether that’s enough to get them through another six months will depend on whether they actually have positive cash flow, but it’s probably enough if they’re satisfied with the pipeline of deals they already have.
So my first impression, after looking through their stuff for an hour or so, is that they are not particularly likely to have blowout growth — they may well become profitable over the next year if they can get a couple more decent customers on board, but they’re not spending big to grow big. Maybe that means they’d like to be acquired, maybe it just means that the business is a lot more competitive and they’re happy to build a profitable niche helping Anheuser-Busch make sure it doesn’t run out of kegs, I don’t know, but something about it strikes me as a very small company that will probably remain very small — I could easily be wrong, but that’s my first impression.
How about you? Interested in a piece of TrackX? See something here to like with the Carvana and BUD deals? Have any insight into this inventory control software business that makes you more or less confident about their ability to grow or compete? Or get bought out? Let us know with a comment below.