Over-The-Counter Bi-Weekly #6 - Discounted Tickets, Cleaning Business, Zippers And Motivational Speaker

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Includes: MNMT, TALN, TIXC, TTHG
by: Jan Svenda

Summary

Search for alternative ways to screen the OTC land continues. Let me know your favorite strategy in the comments.

Below you will find three interesting stocks that might become an investment opportunity and one curiosity.

This time my favorite is a business selling discounted tickets in Las Vegas. It has a significant amount of free cash flow and pays out a solid dividend.

Without further ado, here are 3 stocks that I found in the past two weeks or so and that I believe could lead to more interesting research. These might not result in an investment opportunity, but I feel that if one looks at stocks properly in-depth, he/she can always learn something new. Some of them are also dark and just caught my interest because of material information that I saw online.

Before I dig in, I feel obliged to say: Caveat Emptor! Always do your own due diligence and do not take the following tickers as a solicitation to buy.

Tix is running a simple business. It sells discounted (mainly last-minute) tickets to a majority of Las Vegas shows through a number of stalls. It does not seem to have any viable competition and thus is able to continuously create a significant amount of free cash flow which is currently yielding roughly 15% (and that was a down year for the operations).

It redistributes almost all of the cash flow through dividends which leads the company to have a roughly 13% annual yield at the current price. Some investors were skeptical as to whether the dividend would withstand the last year due to the operational challenges (slightly lower revenues and increased operating expenses), but the company seemed to be dedicated to continuing its policy.

It also has roughly $7 million in cash with $2 million in total liabilities and the stock tangible book ratio is only 1.5x, which given the strong cash flow might be showcasing enough of a margin of safety (part of the balance sheet though are deferred tax assets).

While the moat of the company is likely to be small (especially given the possibility of developing an app that would substitute TIXC), the valuation and the still significant cash flow should warrant further research.

Nick covered the stock roughly a year ago.

Price: $1.32

Volume (30-Day Average): 22,007

Reporting: Grey - OTCmarkets.com

I believe that it could be interesting to track this 'holding company of sorts' (its main operations are shops with janitorial equipment) for the following reasons:

  • The valuation is enticing as the company is trading at around its cash position and at a significant discount to the underlying value of the operations, real estate and NOLs. The company trades at least 23% below its liquidation value. The operations are stable and are unlikely to change this due to their minor profits. The subsidiary's cash flow is actually contributing to the cash position.

  • This means that the key question is what is going to happen with the cash. Management has actively invested in the past, but this has not brought much profit. It is unclear whether they would be open to redistribution of the cash, or some meaningful acquisition given the entity's NOLs.

The downside risk here is clear, though, as the company is essentially a cash pile with side operations. Anything that would burn the cash (excessive compensation, misguided capital allocation, etc.) could then bury the upside. I believe, though, as the management is with the company for over 17 years their goal might not be to squander this balance sheet.

You can read more about the business on my instablog post about it. Nate from Oddball also covered the stock.

Price: $0.229

Volume (30-Day Average): 10

Reporting: Grey - Their website

Talon was able to carve out an interesting little niche of producing zippers, trims and other details that occur on almost every piece of clothing. It manufactures these products for brands such as Ralph Lauren (NYSE:RL), Next (OTCPK:NXGPY), and many other well-known brands. It traces its history back to the late 19th century and I can imagine that the zipper industry is still going strong.

Its financials certainly point to it, although it seems that they might have been mismanaged prior to the financial crisis (the revenue was volatile but did not show any declining trend).

Since then, though, the company regularly achieves a profit and generates operational cash flow. In the past three years, it has also accumulated roughly $4 million in cash with a market capitalization of $9.2 million. That being said, it does utilize a credit line, on which it currently has a $3.5 million outstanding liability. Other than that the balance sheet is relatively clear.

Unfortunately, it is trading at roughly 3x its tangible book, but the implied expectations are only around $6 million which the company might be able to fulfill given the latest operational results. It also seems to have a relatively concentrated ownership of the company which might pose some risks.

I believe, though, that given the interesting niche and relatively stable operations, the stock calls for deeper research.

Price: $0.06

Volume (30-day average): 2,362

Reporting: SEC

And lastly, here is the bi-weekly curiosity that might not be an investment opportunity, but might be worth hearing about for whatever reason.

Ever wanted to own a share in motivational speaker Lisa Nichols? With Motivating The Masses (you can see that it is aiming for scale), you have the chance to do so. While it's running a shareholder deficit, the company was actually able to report an income in the past nine months which is in contrast to a loss in the previous year. Who knows? Maybe Abundance Now will not only be the title of Ms. Nichols's book.

Finally, I would like to borrow few words from Thomas Braziel:

"Think about it - where are the truly undervalued securities? It is in the overlooked, deep dark reaches of the markets. The boomed out, the busted, the complex, and the convoluted."

I would add: Are you wondering how to find them? Just research, research, research!

P.S. If anyone should diagnose themselves as a possible member of 'Anonymous OTC-holics' hit me up with a ticker that you do not have the time to look at or want to have a second pair of eyes on!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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