Liquid Holdings Group: 500% Upside Potential

| About: Liquid Holdings (LIQD)


131% year over year revenue growth.

Traded as high as $10.00 less than a year ago.

Float is largely taken up by billionaire investors and insiders.

New offerings and displacement of existing products.

Liquid Holdings Group, Inc. (NASDAQ:LIQD) provides proprietary niche cloud-based trading and portfolio management solution primarily in the United States. Its solution integrates order and execution management with real-time risk management, reporting, shadow accounting, and managed services in a single platform for the financial services community. The company's Liquid platform consists of the LiquidTrade, a trading platform; LiquidMetrics, a risk metrics platform; and LiquidView, a shadow accounting platform. The company offers support services to assist in the implementation and utilization of its platform. It serves hedge fund managers, asset managers, and wealth management offices. The company is headquartered in New York, New York.

Liquid Holdings is presently trading at $1.50 with a total market capitalization of 89.8 million dollars. The 52-week range is $1.20 to $10.30, and at this current price level, the stock is trading 25% off the low and 85.5% percent off the high. Sales following the IPO simply did not match the high share price valuation and the market adjusted downward to reflect that. Investors who bought near the highs were feeding on cloud space mania, but some large investors, like Von Allmen, have used this oversold condition to add to their position. While a price drop of this magnitude is certainly worthy of attention, I believe this represents a great opportunity for traders and investors alike to capitalize on a company that is severely undervalued in the marketplace today.

LIQD recently posted an outstanding earnings beat in its most recent 10-Q. Here are some highlights: Revenues grew at a year over year rate of 131% and 20% over the prior quarter. The customer base has grown from 30 customers in June of 2013 to 130 in June of 2014. Note that of the 30 original customers, 23 contributed to GAAP revenue and 7 were expected to contribute to future GAAP revenue. This year 97 customers contributed to GAAP revenue and 33 are expected to contribute to future revenue. I view this as backlog growth, which is why it is not surprising to see this week's announcement expanding Liquid's data center footprint by 350%. LIQD also uses a non-GAAP key operating metric to estimate contract revenue for the next twelve months. In 2013, this value, also known as Annual Contract Value (ACV), was 1.71 million dollars. In 2Q 2014, this value was $5.45 million, a 219% increase. While there is risk this growth rate will not continue, this fledgling company seems to have the product, tools, and management to enjoy supernormal growth near-term.

The 10-Q highlights some important considerations regarding the share structure of the company. Liquid has 60.07 million shares outstanding, but there are only 29.49 million shares available in the float. Of that available float, 8.34% of the shares are being held short. The 3-month average volume is 1.08 million shares per day, and due to the limited availability of shares, there is a distinct possibility of a major short squeeze on this stock. The major holders of the available shares are also certainly worthy of consideration. Ferdinand Entities owns just under 10% of the available shares, those shares are restricted from sale until mid April 2015. Billionaire Douglas Von Allmen who helped to fund the start up of the company, is presently a 10% owner, and not likely to sell his interest in the near future. Another Billionaire investor you may have heard of, Michael Dell, is also a 10% stakeholder through his family's holding company MSDC Management. Federated Investors, a 364 Billion Dollar money manager is an 8.5% shareholder. Most importantly, the management team is fully invested in this company, owning over 10% of available equities. The current shares are in strong hands and there is low probability of an offering anytime soon. The most recent offering was fulfilled largely by these major holders and raised sufficient capital to fund operations for much more than a year.

There are a few more items that I believe are important to take into consideration when looking at potential valuations for LIQD. The company has an award-winning platform that has the potential to change the hedge fund marketplace using Software as a Service technology, often referred to as the cloud. This technology space continues to grow by leaps and bounds. One only needs to look at a's (NYSE:CRM) monthly chart to see the amazing value the cloud can bring to the table. LIQD states that 30% of its business is currently generated by displacing existing products and that trend is likely to accelerate as the paradigm shift to the cloud takes hold. The company is levering its capabilities on multiple fronts, and has recently taken on a top 20 new hedge fund with over 500 million in assets under its umbrella. Another large client has also requested, and LIQD is responding in kind, with a mobile platform due out in weeks. This could be a game changer for the hedge fund community as a whole and for Liquid Holdings.


Liquid Holdings is a beaten down stock that has very high potential and limited downside. Fundamentals are strong for such an immature company, and it is driven by a highly experienced management team and board of directors. The CEO is former chair and CEO of NYSE blue; The CFO, former CFO of NYMEX; the board includes former senior executives at Goldman Sachs, NIC Holding Corp., and the co-founder of Knight Capital Group. Technically, the chart is set for a major breakout. Roberto Pedone, a popular contributor to, has mentioned the potential of this stock to breakout multiple times in recent weeks. Since he last highlighted the stock on July 31, 2014, the stock went on to put in an important double bottom in the $1.25 area. I expect a quick snap back to test the $2.20 area near term. A very quick run occurred in just eight trading days from June 20, 2014 to July 1, 2014, rocketing shares from $1.56/share to 2.20/share. The 200-day moving average is $2.90, a good target for next earnings. Longer-term holders I believe could see north of $7.50 over the next 18-24 months if expansive growth maintains its current trajectory. It is also an ideal takeover candidate by larger cloud based competitors, like Oracle or Salesforce, due to the additional value this company can add to their current portfolios.

Disclosure: The author is long LIQD.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

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