Lots of problems other than comps Wood
Valuing VRUS on a relative basis is a complex exercise that most institutional investors, if there are any that look at something this small, won't bother doing. Collection of businesses that don't have any meaningful synergies between them either due to geography or more importantly, product lines. In my view, the story devolved into a holding company strategy that is more akin to a PE/VC fund than the operating company that those of us that got in back in 2017 (or earlier) were attracted to (fortunately I've been out for a while). The problem with looking at it on a PE/VC basis is that it's being funded with costly VCD to this point. Anshu hasn't demonstrated an appreciation for cost of capital, just growth at all costs. That's resulted in massive shareholder value destruction (stock down 90% since his first earnings call in early 2017) with the share count up over 10x.
Part of the problem is that Anshu's incentive package is largely based on revenue growth, not share price appreciation. He's being rewarded for doing deals and adding revenue without regard for the cost of capital. It's one of the reasons that I ultimately sold as the corporate governance is terrible and his incentives need to be adjusted towards being shareholder friendly. It's also mind boggling that two Board directors own ZERO shares, but I guess they've been the smart ones so far.
That said, every stock has its price where it becomes attractive, but this is the OTC. Much better off waiting for the catalysts to emerge and be reactionary versus anticipatory in the vast majority of cases. I think a few things need to happen to get the stock price moving in the right direction:
1. Fix the capital structure. Put in a meaningful credit facility that can take care of working capital requirements. This could be tough given the current funding backdrop for smaller companies, but perhaps they got some funds from the EIDL (they applied for $2mm). They also need to fix the share structure (and stop dilution at such awful prices)- I've harped on that one for a while so I'll leave it at that.
2. Demonstrate growth beyond the original beef distribution deal. I'm not a fan of the BLF biz, but if you are, you need to see that start to pick up and they need to disclose metrics surrounding this (not just tweets and vague PR statements). Perhaps this Verus Cares opportunity will work for them too. I'm not a fan of that either as there are a lot of companies that have jumped into PPE production so competition could be intense, but we shall see.
3. Change Anshu's incentive package towards being more shareholder friendly. I'm all for him being rewarded for his efforts IF they create shareholder value. The current package wasn't shareholder friendly in my view (shares struck well below the share price at the time). I think the salary levels are out of whack too for a company this size. Not holding out any hope that the company will put in more favorable corporate governance and incentive packages, but dare to dream I suppose.
As I said, I have no shares and am not a disgruntled shareholder. I sold at very profitable prices (though less than I envisioned) despite having to average down due to Anshu's persistent dilution. I have been watching the stock and trying to figure out a price target, but it's hard to do that without stability in the share count and more information on revenue growth rates by product line. Trying to be constructive and I hope Garnock's stock sale acts as the wakeup call that it was supposedly intended to be. Good luck.
AI
