SFNL.ob Highlighted DD:
Revenues:
Q1: 42,000
Q2: 129,167
Q3: 1,552,942
Net Income:
Q1: -196,911 (-.02)
Q2: -45,615 (-.00)
Q3: 1,024,571 (.06)
As we can see the story is just beginning to unfold on this one. The question now is not whether we can grow from q3 in q4, but can we match it. I mean if they can earn .06 a quarter, that would be .24 in a year. However, there is a big “if” here. This stock is your classic example of High Risk and High Reward. I mean if they show that q3 was not a fluke this the most undervalued company in the value micro cap index, and it is as simple as that. Yet, there are issues here, we do not know if this is a one-quarter wonder, among other issues (Shares outstanding probably going a little higher then this but not overly significant). Plus it looks like a risky business from my basic understanding of the situation.
Valuation: Because of what I perceive to be the risks of the business, I would not place a PE more then 10, and would feel comfortable placing a PE of 7-8 on the stock. Now if they can come in with .06 a quarter, that is still a $1.68 price target at a projected PE of 7, which is much more then the .40 it closed on Friday, so it is terribly cheap if q3 number aren’t a fluke, and I don’t think they are going to be a fluke personally.
Balance Sheet: The balance sheet isn’t terrible, and is certainly not a major caveat from buying if you believe in the story here.
Technicals: SFNL.ob RSI is 44.1, which is closer to oversold then overbought territories. The stock is currently below the 50-day moving average of .43, and is setting a nice base here around the .40 levels. Clearly consolidation period was needed after the run up, but it wouldn’t shock me if this one got a pre earnings run up, which means it could start taking off before the quarter gets here, which I would definitely appreciate.
Conclusion: SFNL.ob in my opinion is a must own stock in the portfolio, because it may have the best potential of any stock we talk about on the value micro cap board. However, this one has plenty of risks, and should not be a huge part of a portfolio. My strategy would be to have a small position, and try to add on the run if they deliver a Great Q4. This stock has the making of a strikeout, or a walk off grand slam homer in my opinion. I could always be wrong though.
