March 7, 2021
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
The Singing Machine Company (SMDM): http://boolefund.com/singing-machine-company-smdm/
ADF Group, Inc. (DRX.T): http://boolefund.com/adf-group-inc-drx-t/
Thermal Energy International Inc. (TMGEF): http://boolefund.com/thermal-energy-international-inc-tmgef/
Helix Energy Solutions Group, Inc. (HLX): http://boolefund.com/helix-energy-solutions-group-inc-hlx/
Five Star Senior Living Inc. (FVE): http://boolefund.com/five-star-senior-living-inc-fve/
North American Construction Group Ltd. (NOA): http://boolefund.com/north-american-construction-group-ltd-noa/
Vera Bradley, Inc. (VRA): http://boolefund.com/vera-bradley-inc-vra/
Lazydays Holdings, Inc. (LAZY): http://boolefund.com/lazydays-holdings-inc-lazy/
Karora Resources Inc. (KRRGF): http://boolefund.com/karora-resources-inc-krrgf/
Diamond S Shipping Inc. (DSSI): http://boolefund.com/diamond-s-shipping-inc-dssi/
DHI Group, Inc. (DHX): http://boolefund.com/dhi-group-inc-dhx/
Saga Communications Inc. (SGA): http://boolefund.com/saga-communications-inc-sga/
Northwest Pipe Co. (NWPX): http://boolefund.com/northwest-pipe-co-nwpx/
Smart Sand Inc. (SND): http://boolefund.com/smart-sand-inc-snd/
Terravest Industries Inc. (TVK.TO): http://boolefund.com/terravest-industries-inc-tvk/
LGL Group, Inc. (LGL): http://boolefund.com/lgl-group-inc-lgl/
G-III Apparel Group, Ltd. (GIII): http://boolefund.com/g-iii-apparel-group-ltd-giii/
Hummingbird Resources Plc. (HUMRF): http://boolefund.com/hummingbird-resources-plc-humrf/
Micropac Industries, Inc. (MPAD): http://boolefund.com/micropac-industries-inc-mpad/
Barrett Business Services, Inc. (BBSI): http://boolefund.com/barrett-business-services-inc-bbsi/
Delta Apparel, Inc. (DLA): http://boolefund.com/delta-apparel-inc-dla/
AdvanSix, Inc. (ASIX): http://boolefund.com/advansix-inc-asix/
Universal Technical Institute (UTI): http://boolefund.com/universal-technical-institute-uti/
Burnham Holdings Inc (BURCA): http://boolefund.com/burnham-holdings-inc-burca/
Select Interior Concepts (SIC): http://boolefund.com/select-interior-concepts-sic/
Manitowoc (MTW): http://boolefund.com/manitowoc-mtw/
Ciner Resources LP (CINR): http://boolefund.com/ciner-resources-lp-cinr/
Global Ship Lease (GSL): http://boolefund.com/global-ship-lease-gsl/
Alico, Inc. (ALCO): http://boolefund.com/alico-inc-alco/
Genco Shipping (GNK): http://boolefund.com/genco-shipping-gnk/
SEACOR Marine (SMHI): http://boolefund.com/seacor-marine-smhi/
Tidewater (TDW): http://boolefund.com/tidewater-tdw/
TravelCenters of America (TA): http://boolefund.com/travelcenters-america-ta/
Teekay Tankers (TNK): http://boolefund.com/teekay-tankers-tnk/
Ranger Energy Services (RNGR): http://boolefund.com/ranger-energy-services-rngr/
Macro Enterprises (Canada: MCR.V): http://boolefund.com/macro-enterprises-mcr-v/
This week, we are going to look at Myomo Inc. (MYO). From the company’s website: “Myomo, Inc. is a medical robotics company that offers expanded mobility for those suffering from neurological disorders and upper-limb paralysis. Based on patented technology developed at MIT, Harvard Medical School, and by the Company, Myomo develops and markets the MyoPro® product line of lightweight, non-invasive, powered arm braces (orthoses) to restore function in the paralyzed or weakened arms and hands of individuals that have suffered a stroke, spinal cord or nerve injury such as brachial plexus injury, or other neuro-muscular disability such as amyotrophic lateral sclerosis (ALS) or multiple sclerosis (MS). It is the only device that, sensing a patient’s own neurological signals through non-invasive sensors on the arm, can restore their ability to use their arms and hands so that they can return to work, live independently, and reduce their cost of care.”
MYO has a market cap of $62.3 million. The stock price is $13.55.
First we screen for cheapness based on five metrics. Here are the numbers for Myomo Inc.:
- EV/EBITDA = 1.04
- P/E = 3.90
- P/B = 2.71
- P/CF = 1.30
- P/S = 0.39
(These figures are based on estimated revenue of $160 million in three to four years. There are 3 million people in the United States with chronic arm paralysis, and at least 10% of them would fit the perfect patient profile for MYO. Also, 750,000 people have a stroke in the United States each year, and 10% of them would be good candidates for the MYO product. Furthermore, the company’s product has gained regulatory approval in Germany and the company also has a footprint in other European countries. Moreover, the company signed a JV with Ryzur Medical in China.)
Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company. For more on the Piostroski F-Score, see my blog post here: http://boolefund.com/piotroski-f-score/
MYO has a Piotroski F-Score of 7. (The best score possible is 9, while the worst score is 0.) This is good.
Then we rank the company based on low debt, high insider ownership, and shareholder yield.
We measure debt levels by looking at total liabilities (TL) to total assets (TA). Myomo Inc. has TL/TA of 21.4%, which is excellent.
Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders. At Myomo Inc., insiders own 13% of the shares, which is decent.
Shareholder yield is the dividend yield plus the buyback yield. At MYO, the dividend yield is zero and the buyback yield is zero. So shareholder yield is zero.
The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items, hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.
See MYO’s most recent investor presentation (February, 2021): http://ir.myomo.com/~/media/Files/M/Myomo-IR/reports-and-presentations/myo-inv-presentation-mar-2021.pdf
Intrinsic value scenarios:
- Low case: EBITDA may only be $6 million. The company may be worth an EV/EBITDA of 8. That works out to $13.11 a share, which is 3% lower than today’s $13.55.
- Mid case: Normalized EBITDA is at least $48 million. With an EV/EBITDA of 10, the stock would be worth $107.02 per share, which is about 690% higher than today’s $13.55.
- High case: EBITDA may reach $72 million. With an EV/EBITDA of 10, the company would be worth $159.20 per share, which is about 1,070% higher than today’s $13.55.
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time. See the historical chart here: http://boolefund.com/best-performers-microcap-stocks/
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: firstname.lastname@example.org
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.