Verus International Inc (VRUS)

[Renegades17]

My take on the quarter and guidance

I can see some disappointment on the level of revenues, but the company did maintain full year guidance of $100mm. Given the quarter was back end loaded, it is probably reasonable to assume that next quarter will produce several million dollars in revenue.

Clearly, the company needs some working capital financing. I'm not sure if they addressed this on the call, but that is something that I would like to understand better. That said, even if the revenue target gets pushed back some, if they can exit the year at $25mm/qtr in revenue, that would be phenomenal sequential growth.

I think the biggest positive is the gross margin. 17.7% on such a low revenue level is fantastic in my view. I was hoping for low double digit gross margins, so the margins were much closer to a branded food business than those of a pure distributor. The CEO seemed to indicate that these gross margins were sustainable.

If you give them credit for $100mm in revenues (at least on a run rate basis for FY 2018), at a 17% gross margin and with $3mm in opex, the untaxed EPS should be $0.06 (based on 250mm shares outstanding). Tax effect that at 20% and it's $0.05. I don't think it's unreasonable to put a 10x multiple given the growth and margins (and applying a healthy risk factor), so that equates to a $0.50-$0.60 stock. It will probably take a couple of quarters of execution to get there, but I think the risk/reward is phenomenal at this juncture.