Vinco Ventures: This Early-Stage Growth Stock Is A Buy

May 15, 2022 9:25 AM ETVinco Ventures, Inc. (BBIG)33 Comments4 Likes
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Summary

  • Vinco Ventures Inc. is an early-stage digital company, that is presently focused on an acquisition-based growth approach through innovation.
  • To streamline its business and deliver value to its shareholders, Vinco is spinning off its Cryptyde subsidiary, which will result in a one-for-ten stock distribution.
  • BBIG price is likely to continue in their climb at least until the share distribution on 27th May 2022, after which the stock is positioned to undertake a long-term growth.
  • Vinco’s increasing gross profit despite revenue dip, as well as its strong liquidity position further, inspires confidence amongst market participants.

Notebook written with text SPINOFF. A business concept.

Abu Hanifah/iStock via Getty Images

Vinco Ventures Inc. (NASDAQ:BBIG) is a stock that I believe to be uniquely positioned to take on a long-term growth ride. The stock is a buy, not only given the short-term price inflation that is expected to continue until its spin-off share distribution is completed, but well into the long-term. An early-stage growth stock, with all the right signs, is not one to simply overlook.

Company Overview

Vinco Ventures Inc. is a consumer products and digital media company that was incorporated in mid-2017. The company’s business strategy is what is known as the ‘BIG approach’ which entails buying, innovating, and growing business units, that are linked either to content or digital media technologies, as part of the company’s wider strategic vision. This approach allows Vinco Ventures to leverage emerging opportunities from the dynamic digital market.

Through its strategic acquisition model, BBIG is in pursuit to enhance its balance sheet by adding high potential brands that can be enhanced to ensure maximized value creation. To achieve sustainable innovation for its acquired brands, BBIG utilizes its internal traffic platforms such as Social Media Pulse and Honey Badger to generate conversion traffic, and scale-up business accordingly.

The most significant development relating to Vinco was its announcement in November 2021, with plans to spin off its wholly-owned subsidiary, Cryptyde Inc. into an independent entity, with the reported date of the move being on the 18th of May 2022. Cryptyde is a blockchain-based business entity that has a business strategy focused on delivering gains through cryptocurrencies and NFTs.

The arrangement would see 1 share of Cryptyde being delivered for every 10 shares of BBIG, after which each stock would embark on an independent business trajectory, with resource allocation that is best suited as per its respective strategic visions. As a result of this news, Vinco has increasingly been under the market spotlight, with traders and investors closely watching the stock’s movements, with an eye out for any announcements by the Vinco management. In anticipation of the share dividend expected to take place in late May 2022, BBIG has been seeing increased buying activity within the market. May 6th saw a 33% surge in the premarket session, following the announcement of the date of the share dividend transfer. However, a curious case of a price plummet had recently been seen, in what is increasingly looking to be a response by short holders to counter the short squeeze observed.

BBIG stock

Seeking Alpha

BBIG Growth Potential in light of Cryptyde Spinoff

Ever since the business separation between Vinco Ventures and Cryptyde had been announced, the BBIG stock had found a renewed surge of importance, with the move anticipated to deliver substantial value growth for each stock. The sentiment was shared by the management of Cryptyde, with the CEO McFadden stating that the spinoff would allow a sustainable scaling up of business, without compromising the value of its shareholders. The market reacted swiftly to the news, with BBIG rising upwards of 120% from January 11 to January 18, 2022.

Vinco Ventures stock price

Seeking Alpha

A spin-off by its nature is a move that potentially results in long-term gain as the businesses being separated would be able to deliver improved profitability as per an independent strategy, and without having to face a compromise in resource allocation. In the case of Vinco and Cryptyde, there is a potential for value delivery and growth acceleration for each of the two lines of business. Moreover, I believe that Vinco management could potentially take a more streamlined approach following the spin-off, and focus its core competencies on its primary strategy. This view is based on the statements by the Vinco management which state that Cryptyde’s packaging and blockchain services are not related to the company’s core competencies, and therefore greater value could potentially be delivered to shareholders through a separation of both businesses.

Moreover, both BBIG and Cryptyde are dynamically positioned stocks in their respective sectors, each of which offers high growth potential. This is a clear factor of attraction leading to a drive-up in BBIG price, which I believe is likely to continue up until the 27th of May, the day of the share distribution. BBIG will eventually fall in value, as spinoffs typically see a price correction in a value transfer between the shares that sees a net difference of being close to zero.

In the meanwhile, I am inclined to believe that BBIG will continue to climb up until the share split, as the present price does not reflect the present value of both stocks currently encapsulated within BBIG alone. In addition to representing a share in Vinco, BBIG is additionally a gateway stock for gaining access to Cryptyde, before the official launch of its share. As a result, the growth realization is likely to be remarkable in the upcoming days and weeks.

Earnings and Performance

In addition to the price drive-up observed in relation to the Cryptyde spin-off, it is essential to ensure that we do not lose sight of the stock’s individual potential, which is independent of the business separation. This can be assessed by its earnings report for FY21.

Because Vinco Ventures is a company under transition, its revenue took a hit in FY21, declining 18.5% from $12 million in 2020 to a mere $9.8 million in 2021. Given the acquisition-based growth strategy of Vinco, as well as its classification as an “emerging growth company” under the jobs act, these declining revenue figures do not concern me too much. As of May 2022, the company is valued at only $400 million, in terms of market capitalization, which deems it as being in the micro-category of firms. It is neither abnormal nor a cause for panic for companies at this point in their lifecycle to report irregular revenue figures, as is indicated in the revenue trends below:

Vinco Ventures revenue trend

Finviz

Moreover, this revenue fall did not prove especially adverse for the company, especially given its gross profit improvement from $2.45 million in 2020 to $2.48 million in 2021, despite reduced sales. This enhancement in profitability is evidently a result of the company shifting towards high-yielding margin revenues through its NFT and Honey Badger business segments. The improvement is an indication of an optimization of the company’s business operations through its reduction of low-margin revenues and cost minimization.

Perhaps the most concerning figure for the company had been its net loss. In comparison to 2020’s net loss of $5.2 million, the total net loss delivered in 2021 climbed up to a staggering $713.2 million. As a result, EPS across the year declined from -$0.49 to -$11.24 per share. However, the bulk of this net loss was a result of the accounting treatment of its warrants held, which are restated at their fair values at each balance sheet date. As a result, the company this year had reported a loss on the issuance of warrants of over $656 million. Additionally, the stock-based compensation recorded by Vinco amounted to a whopping $43.3 million during the year, which further increased the company’s net loss figure to such an extraordinarily high figure.

Being a small company in transition, BBIG remains in its early phases of operation, and therefore it would be too early to expect stable earning trends and organic growth. Despite this, the company shows signs of having significant growth potential, such as its increasing gross profit figure, despite a slowing down of revenue. Moreover, the company had increasingly been engaged in lucrative acquisitions throughout the year, taking control of an 80% stake in Lomotif through ZVV Media Partners, holding immense potential in the Indian digital content market, which will be monetized through integration with AdRizer. AdRizer, another leading tech company acquired by Vinco in 2021 points to the dynamic growth potential the stock holds.

Valuation

Given an emerging growth company without positive earnings, determining the valuation of a company such as Vinco Ventures is a challenging feat. The following list demonstrates various early-phase tech stocks that are valued similarly to BBIG. Here is how Vinco fares:

Ticker

Company

Market Cap

Current Ratio

LT Debt/Equity

Price

BBIG

Vinco Ventures, Inc.

386.35

3.10

0.02

2.63

CPTN

Cepton, Inc.

390.07

0.10

2.55

OTMO

Otonomo Technologies Ltd.

204.38

1.70

0.00

1.34

TROO

TROOPS, Inc.

273.28

6.00

0.00

2.69

Source: Finviz

Keeping in mind that Vinco is in its early phases, and its revenue and profitability do not bear significantly on its actual prospects, the company has several green flags that could be taken into consideration. Its current ratio of 3.10 stands positively against many of its peers, indicating the stock has over three times in current assets to pay its short-term obligations. Similarly, it is equally impressive that for a company undertaking so many strategic and high-value acquisitions, Vinco has a long-term debt to equity ratio of only 0.02. This indicates that the company is only bound to rise as its BIG strategy for acquisition is realized over time.

What is most important to consider is that BBIG may further be undervalued, not necessarily owing to its own metrics, but due to the oncoming Cryptyde spin-off, which means every 10 shares of BBIG also consists of the undervaluation gains of Cryptyde. Cryptyde, which has just announced a joint venture with Wattum Management, is well-positioned to grow significantly in the BTC mining ecosystem. Therefore, unlike its peers, BBIG holds the growth prospect of two independent business entities and will continue to do so until the 27th of May 2022, when the share distribution will take place.

A number of additional metrics point to continuous growth that may well be likely for BBIG. The stock is currently trading at 27% higher than its price from exactly 2 months ago, on April 14, 2022. While being 34% above its 52-week low, and an RSI (14) figure of 48.93, there is a sound indication that the momentum of this bullish trend is likely to continue. On this basis, with the price on an upward trend, I am pretty confident in calling BBIG an undervalued stock. Clearly, market participants are taking in long positions with the stock anticipating value realization yet to come.

To further drive the point home, the surging increase in institutional ownership in the last year further points to this notion. This is more promising than the present price surge given the rigorous investment appraisal modes and risk assessment tools employed by institutional investors:

BBIG stock ownership

FX Street

Risks

A major cause for concern pertaining to BBIG is the stock’s concerning levels of a short float, which amount to 21.91%, as of 13 May 2022. The fact that BBIG is so significantly shorted a mere two weeks before spin-off is an indication that there is evidently a strong perception that the move may not necessarily result in value addition for the shareholders of Vinco. These market players taking short positions with the stock are likely anticipating an immediate tumble on the 27th of May 2022. However, as the stock continues its rapid climb, this short position increasingly becomes threatened.

It is important to reiterate that it is strongly expected that the stock will undergo an immediate fall in price following share distribution, with Cryptyde rising by a somewhat equal amount. However, shorting of such significant portions indicates that the fall is anticipated to exceed the price inflation brought about as a result of the spin-off.

Conclusion

BBIG is an interesting case for market participants to consider. Being still in its early phases, and transitioning towards a digital content delivery service, the company has not yet achieved stability in its earnings, nor has it embarked upon an organic growth trajectory. However, I believe this is precisely the beauty of BBIG, which potentially has tremendous growth to realize through its strategic acquisitions and long-term vision.

The most significant aspect of the company is the spin-off of its fully owned subsidiary, Cryptyde, with a share distribution to take place on 27th May 2022. The move will result in one share of Cryptyde for every ten in BBIG. Before that date, I believe the stock is likely to see a steady growth trend. Although a short-term fall will come about immediately after the redistribution, the move will ultimately prove beneficial for the company and accelerate its long-term growth.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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