My Three Favorite Crowdsourced Micro-Cap Investment Ideas

In late May, I took to Twitter to crowdsource my followers’ favorite micro-cap ideas.

I received a ton of great feedback with dozens of company-specific responses.

I also created a Google Sheet with all the names mentioned in the thread, which you can find here.

This short post reviews my Top 3 Favorite Ideas from that tweet.

Idea #1: Philly Shipyard (PHLY)

Financial Highlights

  • Market Capitalization: $72M
  • Enterprise Value: -$89M
  • Shares Outstanding: 12.11M
  • Average Daily Volume: 5.5K Shares

What Does The Business Do?

PHLY operates as a commercial shipyard that builds and repairs vessels for the United States Jones Act market and government. The company owns a shipbuilding facility, which provides ocean-going merchant vessels, including containerships, product tankers, and Aframax tankers.

You can read their Q1 2022 Results here.

What I Like About PHLY

Highly illiquid with an average trading volume of ~5.5K shares. That’s ~$30K daily trading volume at the current price (~$6/share).

There’s a $1.2B order Backlog with the final delivery scheduled for 2024, consisting of five NSMVs and one SRIV (different types of ships).

PHLY also has $101M in net cash on the balance sheet (cash and cash equivalents minus total liabilities). PHLY is currently trading below net cash.

The company generated positive EBITDA in Q1 2022 of $0.9M and a positive Net Income of $3.5M

What I Don’t Like About PHLY

PHLY’s revenues and earnings are highly volatile based on customer advances/deposits. Any reduction in customer advances during a quarter would result in a significant cash burn as the company still must finance current operations (labor + supplies/parts).

The company has two more years of backlog before it needs new work. Currently, it’s uncertain if they’ll capture new contracts. So there’s a “melting ice cube” element with the company’s net cash position.

Cyclical businesses are suspected to boom/bust revenue and earnings cycles (make hay when the sun’s shining!).

How Cheap Is It?

PHLY trades at a current market cap of $72M with $89M in NAV on the balance sheet. The company’s only significant liability is deferred revenues (~$284M). 

If a private buyer bought the entire company for ~$6/share, she could liquidate everything and give shareholders $7.35/share in return. That’s a 22% arbitrage.

Moreover, the company demonstrated an ability to generate between 5% and 15% operating margins in the past. What if they did that on their current order book? A ~8% operating margin on $1B in orders gives us more than the company’s market cap in EBIT (~$80M).

Finally, I like how my friend Michael Fritzell put it in his tweet (emphasis mine):

“Imagine how strategic the asset will become once Chinese naval strength starts to exceed that of America’s”

What if someone is willing to pay 4-6x EBIT for this business? You’d then have a $400M asset currently trading for $72M.

Idea #2: First Helium (HELI.TSX)

Financial Highlights

  • Market Capitalization: $30M
  • Enterprise Value: $27.6M
  • Shares Outstanding: 75M
  • Average Daily Volume: 194K Shares

What Does The Business Do?

HELI is a Canadian company developing helium production to meet growing demand in the high-tech global market. 

The company is positioned to become a leading North American producer, leveraging a de-risked strategy to achieve near-term cash flow. HELI recently raised $12M to develop its Worsley Helium Project, anchored by its successful helium discovery well.

You can read the company’s latest investor presentation here.

What I Like About HELI

Helium is a finite resource with increasing global demand. It’s also challenging to trap and store due to its lack of density. It quickly rises and dissipates into the atmosphere.

US helium production is expected to decline over the next decade, leaving Canada as the next (and potentially only) North American helium producer.

The company’s latest Worsley Well Project has the potential to generate helium (and cash flow) from 2023 to 2030. Plus, the company owns 100% of its 79,000-acre project.

HELI’s management team and founder collectively own ~20% of the company, so interests are aligned.

The company generates high ROIs at varying helium spot prices. For example, at $300/mcf, HELI generates a 41% ROI. At $500/mcf, a 72% ROI. HELI also has ~$7M in cash and no long-term debt.

What I Don’t Like About HELI

Commodity-linked business at the mercy of commodity spot prices, namely helium.

Helium is easily lost in the atmosphere, so there’s a risk HELI loses a significant portion of its helium during extraction and/or storage.

We are still unsure how much of the Worsley Well’s 76,000 acres is viable for helium production.

The company could sustain heavy losses if helium volumes come in lower than expected (due to capital outlay for drilling equipment, etc.)

How Cheap Is It?

HELI currently trades at roughly its NAV value of CAD 0.58/share. So there’s no real asset value discount at the current price. However, the company barely scratched the surface of its drillable/explorable wells. And of the ones they have tested, management thinks they’ll generate ~CAD 8M in cash flow (or 1/3rd of the current market cap). 

Obviously, HELI will use that cash to reinvest in further drilling/exploration. But it makes you wonder if this company could generate its entire current market cap in cash flow over the next 18-24 months.

Idea #3: BM Technologies (BMTX)

Financial Highlights

  • Market Capitalization: $75M
  • Enterprise Value: $50M
  • Shares Outstanding: 12.27M
  • Short Interest: 12%
  • Average Daily Volume: 194K Shares

What Does The Business Do? 

BMTX is a digital banking platform that employs a multi-partner distribution model, known as “Banking-as-a-Service” (BaaS), that enables the acquisition of customers at higher volumes and substantially lower expenses than traditional banks while providing significant benefits to its customers, partners, and business.

You can read the company’s latest investor presentation here.

What I Like About BMTX

BMTX is an off-the-beaten-path stock that most investors overlook. The company has a trifecta of “ick” factors: it’s fintech, a former SPAC, and trades for <$100M market cap.

The company has $2B+ in customer deposits. It operates three unique business segments: Higher-Ed Banking, Banking-as-a-Service (BaaS), and Niche D2C.

Its two most interesting segments are Higher-Ed Banking and BaaS. Higher-Ed connects BMTX with 750+ college campuses to distribute financial aid funds while offering students banking access. It also reduces a university’s processing costs by ~$125K/year.

BaaS allows companies to quickly create banking products within existing business lines. For example, T-Mobile leverages BMTX’s White-Label BaaS to provide T-Mobile Money to its customers. BMTX provides these services at a fraction of the cost it would take for companies to create themselves.

BMTX is EBITDA positive and generates ~30% EBITDA margins. They’ve also generated positive FCF since 2019.

The company acquires its banking customers for ~$10, making it one of the cheapest acquirers in the space (along with SQ).

And the founder/CEO owns ~7% of the company.

What I Don’t Like About BMTX

There’s potential nepotism at the CEO level. The current CEO is the daughter of the parent company of BMTX’s spin-off.

Fintech is a highly crowded space, and it’s hard to tell who wins and why they win. BMTX competes with Chime, Green Dot, Square, and SoFi, as well as traditional banks like TD Bank and Wells Fargo.

I don’t think becoming a chartered bank is the right play for this company. It increases their competition and future capital requirements (banks must hold more capital on the balance sheet for loans, etc.). 

I’d rather them focus on their BaaS and Higher-Ed business units than take on the bigger players.

How Cheap Is It?

BMTX is very cheap. The company trades at ~0.46x NTM EV/Sales and sports a 30% FCF yield. It’s next closest comparable, MoneyLion (ML), trades at 1.55x NTM EV/Sales.

We can also think about valuation in dollars-per-customer. For example, BMTX has ~2M accounts at a $75M market cap. That’s ~$38/customer. ML has 3.3M accounts and a market cap of $353M, or $117/customer. TD Bank has 22M customers and a market cap of $124B, giving it a value of $5,300/customer.

Assuming BMTX trades anywhere close to its closest comparable per-customer values, say $55/customer, you’d get $121M in shareholder value.

Additionally, I believe the company is a potential takeout target for a larger player like Square or a legacy bank looking to expand into the fintech space. 

Wrapping Up

I hope you enjoyed these three new ideas. I’d love to get your feedback on them if you’re familiar with any of the names. We’re about to enter a season of tremendous opportunity for micro-cap stockpickers. 

If you’d like to join us in our market adventures then click the link below and sign up for our Collective. We are in one of the most engaging micro-cap environments in over a decade. 

There will be a LOT of money to be made in off-the-beaten path micro-cap ideas over the next 3-5 years. 

Enrollment to our group closes this Sunday at midnight. So if you’re thinking about joining the team, make sure to do so before then. Hope to see you in there and happy hunting!

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

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Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.