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One Stop Systems Is Trading At Expensive Multiples

Feb. 08, 2023 7:00 AM ETOne Stop Systems, Inc. (OSS)24 Comments
Quipus Capital profile picture
Quipus Capital


  • One Stop Systems designs and manufactures rugged computer systems used in mobile or outdoors applications.
  • The company has not been able to grow profits despite changing its strategy two years ago.
  • OSS promises to grow by supplying to the nascent autonomous vehicle industry, but this promise is too uncertain and far in the future.
  • In general, OSS markets are competitive, and the company does not have a competitive advantage, this has resulted in low margins.
  • On a short-term basis, the company is accumulating inventories and receivables, which cast doubts on future revenue.

Concepto de tecnología futurista: camión camión autónomo autónomo con remolque de carga en la carretera con sensores de escaneo. Efectos especiales de un vehículo eléctrico de cero emisiones analizando la autopista.

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One Stop Systems (NASDAQ:OSS) is a designer and manufacturer of rugged computer systems.

The company made a strategic shift in 2020, and has been trying to position itself in the very nascent AI transportable industry. Its products

This article was written by

Quipus Capital profile picture
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Comments (24)

Liquidity Swords profile picture
Hate to say it because this seems like such a lame nitpick, but i think these guys could really use a name change to better reflect their current focus. Sad but true, throw an "ai" in the ticker and watch what happens.
TopDoggie profile picture
@Tomas Andrade Campanini This is the first time I have read one of your articles. Interesting little company.
Value Digger profile picture
OSS has a net cash position of about $10 million in Q4 2022:


As a result, OSS' Enterprise Value at $2.70 per share is about $44 million, so OSS currently trades about 0.6 times its Revenue and about 8 times its adj. EBITDA.

In other words, OSS currently is very cheap, based on absolute and relative valuation analysis.

Specifically, here are the key multiples for some other artificial intelligence companies such as SOUN, AI, BBAI:

- SOUN's Enterprise Value currently is about 10 times its revenue while SOUN has negative adj. EBITDA.

- AI's Enterprise Value currently is about 7 times its revenue while AI has negative adj. EBITDA.

- BBAI's Enterprise Value currently is about 3 times its revenue while BBAI has negative adj. EBITDA.
TopDoggie profile picture
@Value Digger Was just researching this company and thinking some of the same thoughts. Glad to run across your comment. I still haven't decided if or how much I will buy. Hope you are doing well.
Value Digger profile picture
@TopDoggie It's a Strong Buy at today's price levels for the long-term investors.

Hope you are doing well too.
Value Digger profile picture
Unfortunately, the author fails to realize that OSS has a significant and growing presence in the Artificial Intelligence market with an increasing number of contracts including defense contracts, as shown below:




Therefore, OSS could be acquired at any time by:

- A large defense company such as LMT, BA, RTX, NOC, GD etc.

- A large technology company.

- An electric vehicle company.
Thank you Tomas for your article and the following comments.
One thing that we do not talk enough is Bressner business. Bressner represents >40% of the OSS turnover and it kept growing in the last quarters. I am surprised that management do not spend more time on providing middle term vision and strategy on Bressner. Sure we know that Gross Margin is lower than OSS business especially because of military component at OSS but, we do not know how look the operating profit after A&P and SG&A. If you have more details to share, I would highly appreciate.
Tomas, thanks about writing about OSS. I hope your studies are going well in Argentina. Unfortunately, there are several incorrect statements made throughout the article.
David Raun, OSS
Tomas Andrade Campanini profile picture
@David1051 David, thanks for your comment.
Any further detail will be greatly appreciated.
Sergio Heiber profile picture
@Tomas Andrade Campanini I also think you miss on your evaluation of OSS. First if all, the company is profitable. Second, the long sales cycle is the competitive advantage. OSS creates customized products that are sticky and have long shelf life. The edge computing industry is just getting started. I agree with you that completely autonomous trucking isn’t as near term as OSS investor deck makes it out to be but the military AI transportable market is ripe. GPS can be jammed by enemy forces. OSS will be winning high margin long term contracts for military vehicles including drones, ships, tanks, etc besides their airplane contract which is expected to expand to all branches of the US military.
I’ve spoken with CEO David Raun on several occasions. He has done a marvelous job in turning this company around. Most if it you noted such as cutting expenses, focusing the company mission and strategy, building up the cash position and maintaining inventory in order to offset any potential supply chain problem and improving the performance of the European division. I think that OSS will score major military wins this year. Breaking into naval vessels and drones etc
Tomas Andrade Campanini profile picture
@Sergio Heiber Thanks for your comment.
I think we agree on the outlook, maybe not so much on how much we are willing to pay for that (uncertain) future.
@Sergio Heiber Consistent with what you have stated and others, as well as what we have stated at earnings calls...our main focus since implementing the strategy in 2021 has been to develop the military part of the business which takes longer. Fortunately, as we also stated, we expect 2023 to be a year of proof points including higher margin revenue growth with the military.
MedTechBio profile picture
@David1051 Any word why the leadership change? I hope it is not due to illness, but as a shareholder, it would be relevant to understand why a new CEO is needed at this time.
Liquidity Swords profile picture
Disagree, EV of $64m is absurdly low, could easily 3x in a takeout if one of the big server makers or mil contractors wanted to snag it. Here's some multiples for you: p/s <1x, p/book 1.5, fwd non-gaap p/e 17.5, 3x more cash than debt. Float is 15.1m shares.
Tomas Andrade Campanini profile picture
@Liquid Swords Thanks for your comment. I usually try to value companies on the basis that the investor has to make all of the returns from company income generation alone. If the investment is good under that condition, then any further share price appreciation will be a plus, and conversely, a share price decrease can be weathered more easily knowing that the business is generating sufficient income.
I think you are missing the point. The sales cycle of the products is indeed very long - because they are embedded and are a small part of a much larger complicated product (a drone, a truck etc...). But the flip side of it is that it is very complicated for the end customer to replace the OSS ruggedized product in their own end product.
Imagine you are defense contractor product manager. You have finally managed to go through the unbelievable long and arduous hoops the DOD has put you through in finally approving your drone. Are you going to now replace some component in the drone (e.g. Riegel) just because you can find some untested competing product that is a little bit cheaper?
Regarding the inventories - indeed they increased. But only half is finished product with the other half being raw materials. The finished product part of the inventories is about 6 weeks worth of sales. Not too excessive.
Regarding the vendor managed inventory program - at the end of 2021 there was only about $1mm of product held by the company. I wouldn't read too much into it. This is not channel stuffing.
Regarding profitability - in the Q3 results press release the company gave guidance of increased profitability in Q4.
Tomas Andrade Campanini profile picture
@jobxyz Thanks for your comments. I agree with what you mention.
Still, the company has not generated interesting margins on its products, does not seem to have a durable competitive advantage, and its growth prospects are tied to very long term projects (either military or autonomous vehicles). With that in mind, I find the current multiples too high, they are not justified by business quality.
Andrew Hanson, CFA profile picture
Don't overlook the creation of an advisory board which is dominated by retired admirals and generals. They can introduce OSS to military R and D and procurement programs emphasizing computing and intelligence capacity at the edge. The Ukraine is a demonstration of the effectiveness of primitive edge computing systems in target acquisition and control. The impact of the power of an OSS supercomputer at the company level, which could b e a gtarget this decade, is a game changer.
Tomas Andrade Campanini profile picture
@Andrew Hanson, CFA Thanks for your comment. Could indeed be true. However, those developments are uncertain and far away in the future. Are you willing to pay the current multiples on earnings for those uncertain prospects? That's the question.

Every company has a bullish future, the questions always is how much are you paying for that future.
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