Value_Added

ISSC isn’t exactly a drone company “yet” but their R&D budget is largely allocated toward advancing airplane safety by innovating the cockpit and controls of aircraft to become pilotless (drone). Obviously this is YEARS away and maybe even never-their first step is a cockpit without a co-pilot. Great business too. They keep acquiring small companies and product lines from large companies (Honeywell), incorporating their extreme efficiencies (completely vertical on most products) and making a tidy profit. They’re in a position now where they can really flex their operating leverage muscles. CEO mentioned they have extra manufacturing space for one or two more product lines (which will increase their EBITDA margins even more) before they need to expand their facilities. He believes with their current facilities, $100m in revenue is doable. They’ve announced 2 product line acquisitions since this statement was made so I’m making the assumption that over the next few years revenue will creep near $100m (from 45m currently). The expansion is already designed and planned and will cost $5 million to build. Per the CEO, purchasing product lines from a large player like Honeywell also allows them to cross sell their other products to existing Honeywell customers that they would otherwise have to spend money to acquire as a customer, likely with much less success. Projected EBITDA margin as their manufacturing space is fully utilized and newly purchased product lines are taken vertical is 30%. Back of the envelope math…give the projected $100 million revenue a haircut and assume $80 million in revenue. 25% EBITDA margin (current) would be $20 mil in EBITDA. No reason a business like this wouldn’t trade at 20x EV/EBITDA multiple…assuming they stay mostly debt free then the EV would be $400 million (versus $140 million today). If they get to $100m in revenue with 30% EBITDA and trade at a 25x EV/EBITDA, that’s $750m EV. Decent selling pressure due to the passing of the previous CEO. It seems his estate is liquidating his shares and this was mentioned in an earnings call as well. Lots of insider buying beyond that. http://openinsider.com/search?q=Issc Again, not a drone company but technically could be if they ever attain a pilotless cockpit. Great thing about ISSC is that they are currently and historically profitable with some degree of a moat. So they have funds to allocate to the R&D of a pilotless cockpit at a pace that makes sense based on regulations they see in the market…versus most other startups which lose money and have no hopes of making any. Also to note is their revenue is much less cyclical versus prior years as they have taken on more high quality clients via the military and Honeywell customers. This is also mentioned in earnings calls.

Yes. The true believers of bitcoin have done the research and have an opinion of its future value the same as Greg has done with JOE. Anyone that does the work should be able to speak about what they own and argue for or against it without being called a promoter. They put the time in so why do you care if they argue to the benefit of what they own especially if they believe in it? It’s their money…and there’s noone forcing you to spend your money to bet on their beliefs and understanding. There’s probably a stock in your portfolio that many would think you’re wrong about and see it as pure speculation. Where does it end? Who cares how to value bitcoin? If you don’t like it, don’t buy it. There’s more than one path to riches and bankruptcy. Valuation of any asset whether it cash flows or not is pure speculation especially given the fact that time is always a factor…the key is making money based on your understanding of the investment during that timeline.

Any recommendations on literature that would help to understand this better?

G Bank - GBFH. Trades a bit expensive after the recent run-up but it’s a well run bank with near 50% insider ownership. High NIM, seemingly high quality nationwide SBA loans. There is also a huge call option on their gaming, credit card, and fintech division (could be worth billions over the long term) which is slowly and successfully playing out. This is what has created the high P/BV multiple (along with their rapid deposit and loan growth). Their high quality gaming deposits and credit card revenue are replacing their low quality deposits from CDs. Management seems well aware of the regulatory progression of fintech and gaming and they seem well suited to execute on their patents going forward. Interesting situation.

Thanks for all of the recommendations. This is more a fintech catalyst/opportunity with a core banking business as its foundation. I understand the fintech aspect but it is essentially a call option on the position. I need to ensure the core banking is sound as that is where the downside exists. It appears that while they’re a small community bank, they have a large reach across the majority of the US for SBA loans specifically to non-resort hotel chains. It looks as though the Bank Investor Handbook will get me started to help gain an understanding of the financial statements and filings (though The Bitcoin Standard has me intrigued from a curiosity aspect…not sure how much it would help me in this situation).

Thanks, I’ll check it out! And yes, I meant this for a small regional bank so this is exactly what I was looking for.

Does anyone have any good recommendations on literature that would help someone better understand banks? More so from the perspective on what to look out for when looking through their financial statements (red flags) and proper valuation based on the quality of deposits, loans, investments, etc…

I enjoy having Lutnick in charge of my capital. Especially with such a huge catalyst so visible on the horizon.

This isn’t entirely accurate. Constellation (previously Exelon) changed reactor power depending on grid conditions at plants that were money losing due to negative power prices. They no longer do this since the state and federal subsidies covers their costs but is is certainly allowed. https://www.nice-future.org/docs/nicefuturelibraries/default-document-library/exelon.pdf

IMXI

The inflation reduction act has made nuclear power an amazing business in the U.S. for the next 10 years. Guaranteed money with a near completely protected downside. There’s a lot of upside optionality as well such as above 2% inflation, volatile power prices and selling their base-load power at a premium to mega cap and tech companies who are “going green”. Take a look at CEG (Constellation) earnings call and accompanying presentation from yesterday. Pretty impressive how much the inflation reduction act has helped them.

Seems GTX may fit here now with their recent capital restructuring (now a single share class). Tons of cash flow with minimal reinvestment needs, they seem hellbent on paying off debt and buying back stock. They bought back 10% of their shares in 2023 and approved another 15% (at current prices) for 2024. I don’t see why this wouldn’t continue going forward. Business is in a good position too from both a turbo standpoint and zero emission vehicle (battery and hydrogen fuel cell) standpoint. Seems like the focus switch to hybrids could be a small tailwind for their core turbo business as well.

Sure, anything is possible but it’s not likely. Big tech is always a day away from some new innovation that turns the world on its head. If these develop into additional high margin revenue streams, valuations and sentiment will continue in their favor. With that said, their current offerings can become out of favor just as quickly and valuation could go the other way. All businesses in their current form have a growth ceiling - even small caps. It’s important to keep this in mind. Just because something is small doesn’t mean it’s destined to be bigger. Oftentimes when small businesses chase growth, it’s value destructive which will ultimately be reflected in the stock price. Best thing to do is understand what you’re buying and understand how to value it. Once you do, buy it with a margin of safety. If you can’t, just index.

Knowing the circumstances which would cause a margin call is the big pause for me. I know a lot of people out there use leverage in an unintelligent way which is also where most of the horror stories come from. When I get a mortgage on a rental property, I have a pretty good idea of the risk before signing the papers. The value of the home dropping during a housing downturn doesn’t scare me because I won’t get a call that the loan is due because of it. I’m ignorant on the subject, but it seems like stock market hysteria could cause just that even though you know you hold a company’s stock which didn’t really lose any long term value (hopefully). I just don’t understand that aspect enough to feel comfortable with it.

I’m at 0% but not because I think it’s stupid. I think it is an extremely useful tool , but unfortunately is one I don’t understand how to properly manage. To elaborate, I understand leverage…but I don’t understand how it is initiated, what kind of market scenario would constitute a margin call, which investments are viewed by the broker as risky vs safe, etc…for now I just use options as a form of leverage, though it isn’t true leverage which is the topic of this poll. I’ve looked into it via some Google searches in an attempt to learn the ins and outs but can’t seem to get comfortable. All I really find is how people use it for their investment style versus a fact sheet of how it works. Probably because of the multitude of different results and scenarios possible with its use.