5 Microcaps in 5 Minutes (#6)
Microcaps worth a closer look. Edition January 2025.
It has been quite a while since the last 5 Microcaps in 5 Minutes post. I am always amazed at the wide range of outcomes a larger set of Microcaps gives you. Since last year, 15 Microcaps have been presented in this format.
Two of them imploded (SOWG, PHA.V), one was a home run (BKTI) and some others had very respectable returns like KEQU or STRT. As always, the format is not meant to be a deep dive into the stocks, but rather a quick overview. At the time of this writing, I do not have a position in any of the stocks mentioned. However, I may initiate one at a later time. That being said, let's start with today's 5 Microcaps.
1. Paragon Technologies - PGNT
Market Cap: $18 million
Share count: 1.7 million
P/E ’24: 13
PGNT was actually one of the first Microcaps I researched back in 2022. At the time, Sham Gad was still running the show, and PGNT was trading very cheaply on elevated COVID earnings.
It wouldn't have been the worst investment at around $7 in May 2022, with the stock now trading close to $10. Anyway, the story changed dramatically in the second half of 2024. Sham was kicked off the board and also as CEO.
Especially, his “adventures” in running proxy fights have been costly for shareholders and not offset by potential investment gains. In December, Tim Eriksen was appointed to the board. Tim‘s track record is nothing to sneeze at. Solitron Devices has been a 10-bagger under his leadership and since he joined PharmChem, the company has also been making progress. So, naturally, it sparked my interest, when I saw the news of him joining. As of this writing, PGNT has a market cap of $17 million.
They own approximately $4 million in real estate and $1.6 million in publicly traded securities. The operating business consists of an IT retailer in Colombia and an automation business. As I wrote, I think the automation business probably over-earned during Covid. I would put the current earnings power of both businesses at around $1-1.2 per share.
2. Microbix - MBX.TO
Market Cap: CA$68 million
Share count: 135 million
P/E ’24: 16
Microbix manufactures antigens and quality assessment products (QAPs) for clinical laboratories and testing centers. Historically, the company had only an antigen segment. QAPs grew from zero to CA$7 million in revenue in 6 years. In addition to these two operating businesses, they also own the rights to a drug called Kinlytic.
They have a commercial partner who will do the launch once the drug is re-approved. In FY 2024, Microbix has already collected CA$4 million in milestone payments. A launch is planned for the end of 2027. If successful, Microbix estimates it could earn up to CA$15 million in annual royalties.
But even without this drug, management expects to grow its core business by more than 20%. Most of the growth should come from the QAP segment, but recently their antigen business has bounced back from the Covid lows and is benefiting from strong demand in Asia, leading to 45% growth for FY2024. I recommend this interview to get a great overview of the company:
3. Avalon Holdings - AWX
Market Cap: $11 million
Share count: 3.2 million
P/E ’24: N/A
This business consists of two segments. Waste Management Services... and. Take a guess. What else would you expect?
A golf resort. I bet you would not have guessed that. The company is hovering around breaking even, with a very seasonal golf resort.
However, they actually own the land of their golf courses. Net tangible assets on their balance sheet: $38.5 million. Market cap: $11.2 million - and I bet the land is worth more than their balance sheet shows. Chances of the valuation gap closing? Low.
This is a controlled company with two classes of stock and about 68% voting power for the largest shareholder.
4. NN Inc. - NNBR
Market Cap: $147 million
Share count: 49.95 million
P/E ’24: N/A
NN Inc. is a manufacturer of high precision metal components for power and mobile solutions. They primarily serve the automotive and general industrial markets.
This is a turnaround story. The new CEO was hired from the Commercial Vehicle Group in 2023. Since then, he has hired new people to create a new culture at NN, paid down some debt, and closed unprofitable facilities.
The goal from here is to grow profitably. With projected EBITDA of $46 million and an enterprise value of about $300 million. The valuation seems low, but the question is how much of that EBITDA will convert to free cash flow.
5. PCS Edventures!.com - PCSV
Market Cap: $28.2 million
Share count: 122.9 million
P/E ’24: 10
"PCS Edventures is a leading provider of hands-on science, technology, engineering, arts and math (STEAM) curriculum and resources for educators in classrooms and out-of-school learning environments." (from their website)
Under the leadership of Mike Bledsoe (President) and Todd Hackett (CEO), they have grown from a money losing company generating $2 million in revenue in 2021 to a highly profitable company with 30% operating margins and $9 million in revenue for their FY 2024. In that year, they benefited from a huge contract with the Air Force. So it's important to track their progress without the Air Force contract. The company does a great job of disclosing this in their 10Q/K's.
Furthermore, they have been able to increase the customer transactions size:
They are currently trading at about 10x earnings with a clean balance sheet. I recommend this presentation to everyone to get a better understanding of the business: