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1/ Today, I am excited to share my stock thesis on Solitron Devices $SODI
Solitron Devices was the stock that I profiled in my accepted @MicroCapClub application back in November. To comply with forum rules, I have delayed sharing for a couple months. https://www.diyinvesting.org/microcapclub-application-solitron-devices-stock-thesis/
Solitron Devices was the stock that I profiled in my accepted @MicroCapClub application back in November. To comply with forum rules, I have delayed sharing for a couple months. https://www.diyinvesting.org/microcapclub-application-solitron-devices-stock-thesis/
2/ When I was first accepted into MicroCapClub, the most common request I received was to share my accepted stock thesis application as an example for others.
That is the primary motivation for sharing the original application now without modification (but a few notes).
That is the primary motivation for sharing the original application now without modification (but a few notes).
3/ Forum rules restrict the ability to share my submission simultaneously on my blog, so I had to wait a few months in order to comply with that requirement.
4/ With that said, Solitron Devices $SODI is currently my largest stock position and I plan to discuss it periodically on my blog going forward and through this Twitter account.
This stock thesis pitch is just the first of many thoughts on the company.
This stock thesis pitch is just the first of many thoughts on the company.
5/ Important housekeeping: $SODI stock was originally profiled at $4.12 (11/30/20) and is now up to $6.50 over the past 2.5 months, representing a +57% gain.
The thesis is thus just slightly outdated, but the core idea still holds. Important changes included below.
The thesis is thus just slightly outdated, but the core idea still holds. Important changes included below.
6/ $SODI Solitron Devices is a niche manufacturer of defense industry components. These components are a small cost of the overall project but critical to the functioning of the defense equipment.
7/ $SODI The Solitron thesis rests on 3 key areas:
1. Extremely Cheap (3-5x earnings net of cash)
2. Operational Leverage
3. High-Quality Recurring Revenue Company
4. Management understand capital allocation from an investor's POV
1. Extremely Cheap (3-5x earnings net of cash)
2. Operational Leverage
3. High-Quality Recurring Revenue Company
4. Management understand capital allocation from an investor's POV
8/ $SODI Solitron Devices is extremely cheap.
In the first half of fiscal 2021, $SODI earned $1m in profit. Revenue forecasts for fiscal 2022 (the calendar year 2021) suggest that this can be annualized to $2m+ in run-rate operating earnings.
In the first half of fiscal 2021, $SODI earned $1m in profit. Revenue forecasts for fiscal 2022 (the calendar year 2021) suggest that this can be annualized to $2m+ in run-rate operating earnings.
9/ $SODI When you take into account that the company holds $3.7m in cash on the balance sheet, the enterprise value is very cheap.
At the current stock price of $6.50 (2.08m shares outstanding), Market Cap = $13.5m, EV= $9.8m
At $2m+ in run-rate earnings, the $SODI is <5x P/E
At the current stock price of $6.50 (2.08m shares outstanding), Market Cap = $13.5m, EV= $9.8m
At $2m+ in run-rate earnings, the $SODI is <5x P/E
10/ $SODI Solitron Devices has high fixed costs relative to its operations.
As the business grows the topline revenue, earnings will increasingly drop to the bottom line.
10% revenue growth can lead to sustained 20-30% earnings growth for the foreseeable future.
As the business grows the topline revenue, earnings will increasingly drop to the bottom line.
10% revenue growth can lead to sustained 20-30% earnings growth for the foreseeable future.
11/ $SODI Solitron Devices could post earnings of $3m, $4m, or $5m over the next, 3 to 5 to 10 years.
It is difficult to predict so I don't make precise forecasts
All I know is that my past forecasts have been wrong. Way too conservative
My original 2029 earnings forecast =$2m
It is difficult to predict so I don't make precise forecasts
All I know is that my past forecasts have been wrong. Way too conservative
My original 2029 earnings forecast =$2m
12/ $SODI Solitron may likely hit my original 2029 forecast in the fiscal year 2022 (the calendar year 2021) based on my current expectations.
13/ $SODI Solitron has high-quality recurring revenue from its defense projects.
Defense projects are long-term. Once you're into a defense project you may be able to earn revenue for decades from that project.
Defense projects are long-term. Once you're into a defense project you may be able to earn revenue for decades from that project.
14/ $SODI Solitron's CEO is a successful hedge-fund manager @eriksen_tim who clearly understands capital allocation.
It is not often that you have the opportunity to have an investor in charge of capital allocation decisions.
This could be a risk, but I see it as an opportunity
It is not often that you have the opportunity to have an investor in charge of capital allocation decisions.
This could be a risk, but I see it as an opportunity
15/ $SODI Soltron has now exited a multi-year turnaround with a long runway for future growth in earnings and multiple expansion.
You can buy a business today at a P/E of 5 that should trade at a P/E of 20-25.
It's not often you can 5x your money solely with multiple expansion
You can buy a business today at a P/E of 5 that should trade at a P/E of 20-25.
It's not often you can 5x your money solely with multiple expansion
16/ $SODI My price target in my write-up was $15.43 which assumes a simple P/E ratio of 15 on $2m of run-rate earnings plus cash.
This isn't the bull-case scenario. This assumes you see Solitron as simply an average company trading for an average price.
This isn't the bull-case scenario. This assumes you see Solitron as simply an average company trading for an average price.
17/ $SODI I believe Solitron is a wonderful company trading for a wonderful price!
Warren Buffett says investors would improve their returns if they had a punch card with only 20 punches on it for their whole investing life
I've decided $SODI is worth one of my punch card slots
Warren Buffett says investors would improve their returns if they had a punch card with only 20 punches on it for their whole investing life
I've decided $SODI is worth one of my punch card slots
18/ $SODI At the high-end of my growth expectations, Solitron could earn a market value of $60m-$100m based on $3m-$5m in earnings in a few years. ($28.84-$48.07 stock price)
Solitron trades at $6.50 today.
Solitron trades at $6.50 today.
19/ $SODI You must always consider risks.
Solitron Devices has 3 key risks:
1. Auditing concerns (Somewhat reduced with recent 10k release, not covered in my write-up)
2. Very Illiquid (Some days 0 shares trade)
3. NanoCap (Small company)
Solitron Devices has 3 key risks:
1. Auditing concerns (Somewhat reduced with recent 10k release, not covered in my write-up)
2. Very Illiquid (Some days 0 shares trade)
3. NanoCap (Small company)
20/ $SODI I believe these risks are why the current opportunity exists.
This is my focus area. I like to compete in illiquid, small companies that everyone else overlooks.
For many of you, they should absolutely stop you from investing. These are real risks.
This is my focus area. I like to compete in illiquid, small companies that everyone else overlooks.
For many of you, they should absolutely stop you from investing. These are real risks.
21/ $SODI As always, do your own due diligence.
I'm open to answering any questions or having a discussion with any prospective or current investors.
I'm open to answering any questions or having a discussion with any prospective or current investors.
