Shares Of I-ON Communications Corp (IONI-OTCQB) Remain Significantly Undervalued Based On GARP & Relative Valuation Analyses

Feb. 12, 2019 12:02 PM ETIONI1 Comment
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Contributor Since 2015


  • Domestic market share leader and one of South Korea's first growth technology companies to list on the OTCQB - IONI symbol effective in 3Q 2018.
  • Multiple patent-backed enterprise products and solutions at market with blue-chip clientele across South Korea and Japan (100s of clients).
  • Pivoting to growth through international expansion and acquisitions off current revenue run-rate of about $9M- pro forma guidance is $15-20M .
  • Room for significant gross and operating margin improvement via sales mix improvements including more licensing and SaaS contribution.
  • Under the radar and undervalued based on revenue multiples and GARP analysis- 4-5x P/S multiple off trailing and pro forma revenue values the stock between $1.50 and 2.00 per share or a $60-80M market cap.

Compelling Growth At a Reasonable Price (GARP) and under the radar micro-cap stock idea with clear visibility on up-list to national exchange

I-ON has both a healthy and stable business with a proven track record and presents itself seemingly as a compelling, under the radar micro-cap stock following its 2018 OTCQB listing. Approximately 85% of the 35M shares outstanding today are owned by I-ON’s existing management and prior private shareholders. The rest is in the hands of the float and over 650 shareholders by our estimate.

In our view, IONI shares should be worth closer to $1.25-$1.50 or a market cap of $45-50M.  With a total of about 35M shares outstanding and a 10% float, the overall cap structure and stock mechanics seem appropriate, reasonable and well-positioned for further capital formation to drive growth.  The balance sheet as of the latest quarter was healthy as well, with $3M in cash, over $8M in assets and close to $6M in shareholder equity. 

The stock, in our view, based on public comps of emerging and high growth technology companies as well as announced private transaction multiples, could more aggressively also be trading at a revenue multiple of closer to 10x trailing revenue of roughly $9M, which would lift the value of the stock to $1.25 to $1.50 and meaningfully higher over the next twelve months.  Only time will tell as to whether the market views management’s pro forma revenue guidance of $15-20M as achievable.  However, since being public, the company has also met corporate governance and other seasoning requirements to up-list onto the OTCQX from the OTCQB, but is likely about a year away from qualifying for a national exchange.    

Founded in 1999 at the cusp of the internet boom in Seoul, South Korea and rebooted as a corporation in 2003, I-ON is one of few technology or software companies to emanate out of South Korea and conduct a US listing directly onto the OTCQB.  The strategic decision to go public in the U.S. was made in 3Q 2017 and after a year’s worth of diligent preparation, the company successfully listed their shares on the OTCQB in 1Q 2018. The symbol change to IONI occurred in late 3Q 2018.

I-ON holds a first mover advantage as a multi-faceted enterprise software and solutions play with broad customer appeal among hundreds of mid to large scale corporations across South Korea and Japan primarily.  I-ON is also playing into several attractive high growth industries, including sports software, energy IoT, as well as cloud-based CMS and SaaS solutions. Based on recent announcements, revenue appears to be diversifying nicely. All of I-ON's product lines and solutions currently contribute to the top line, which year after year of R&D spend. 

In summary, premium public market valuations are the norm for innovative growth oriented companies in the enterprise software, smart mobility and digital marketing spaces, depending on gross and operating margin trends and top-line growth.  In a 12 month period, I-ON could be operating at a $25M revenue run-rate, generating over 50% gross margin and 15% EBITDA, undervaluing the stock significantly today.

We remain long IONI stock.

Disclosure: I am/we are long IONI.

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