RMG Networks: Potential Multi-Bagger On Sharp Revenue Reversal And Elimination Of Balance Sheet Risk
- RMGN sold off 70% after first-quarter results. A combination of one-off items and complex accounting associated with revenue share agreements created a "messy" quarter.
- RMGN is poised to print strong organic revenue growth while growing margins significantly on a sequential basis throughout 2014. Bookings have vastly improved and management offered highly positive forward-looking commentary.
- The market is overly concerned with possible balance sheet risk. Management is likely working to fortify its balance sheet quickly and wouldn't issue equity at these absurdly cheap levels.
- RMGN's debt covenants are not tested until 4Q14 and are highly unlikely to be tripped. If management comes anywhere close to achieving its goals this won't be a problem whatsoever.
- Valuation is very attractive - RMGN trades well below comparable multiples, private takeover valuation, and normalized earnings power. Upside here is likely a multi-bagger if the company can execute.