PSB Monthly Issue February 2014

| February 6, 2014

February 2014


Well, it certainly hasn’t been the best start of 2014 for equities.  Actually, the word “carnage” comes to mind.

Not that it’s been completely terrible… but even a 5% correction seems like a bloodbath after the last couple years of mostly bullish stock action.

Still, stock selloffs can make great buying opportunities.

But you know what’s even better than a simple buying opportunity?  A buying opportunity that involves a good story!

I mean, after all this selling, shouldn’t we be having a little fun investing?

After all, what’s the point of stock picking if we can’t enjoy it?  We should be interested and excited about the companies in which we’re investing our hard-earned money.

I’m not being glib here.  You really should be interested in the companies you buy.  It’s not always going to be the case of course.  However, it’s much easier to understand and invest in a company if you buy into what the company’s doing.

That being said, we found a company that has a great story.  It should be really easy for investors to get excited about this business and what the company is trying to accomplish.

Introducing Odyssey Marine Exploration (NASDAQ: OMEX).

Key Investment Data

Name:  Odyssey Marine Exploration
Ticker Symbol:  OMEX
Market Cap:  $154 million
Recent Price:  $1.84

PSB Rating System 4.8 Stars

Raging Revenue:  (4.9 stars) The company’s revenues jumped an impressive 487% from the year ago quarter. And, next quarter should be even better with more than $20 million in cash inflows on the way.

Beautiful Books:  (4.8 stars) OMEX has $31.7 million in cash on hand. It will use the money to pay down debt and fund new projects.

Stellar Structure:  (4.7 stars) The company has very strong Institutional ownership at 47%. Insiders own another 6%. Overall, it looks like the smart money is long OMEX.

Valuation Verification:  (4.7 stars) OMEX is well below its 200-day moving average and over 100% below its 52-week high. There’s plenty of upside to be had with this stock.

Meaningful Milestones:  (4.9 stars) OMEX recently recovered 61 tons of silver bullion from a shipwreck. Plus, the company has another $800 million in potential commodity shipwreck targets on the current list alone. That doesn’t even include its other business opportunities.


You want to talk about an exciting business?How about searching for sunken treasure!  That’s exactly what OMEX does, among other related activities.

In a nutshell, Odyssey provides archaeologically sensitive exploration and recovery of deep-ocean shipwrecks worldwide.  The company’s shipwreck projects include research of historical records, search operations, excavation and recovery, conservation, documentation, exhibition, salvage… and of course, commercial monetization of recovered cargo.

Basically, if it’s something sought after that happens to be deep underwater, there’s a good chance OMEX can get it for you.
So how do you run a business based on recovering shipwrecks?

Here’s the thing…

OMEX actually has three different business operations, with each providing the company a very different avenue of revenue flow.

First off, the company seeks historical shipwrecks with cargo value greater than $100 million.  These are the archaeological projects (pre-20th century wrecks) where the goal is something out of a pirate movie… like a chest full of gold coins.

Once OMEX secures rights, locates the ship, carries out the recovery, etc., the company is able to retain 75-100% of what they find. These types of projects only come about every few years, but provide big returns.

In the meantime, the company is able to get more consistent cash flow from its commodity shipwreck business.

This business targets ships which have sunk in the last century and have cargo values over $50 million.  The wrecks typically contain large metal cargoes such as silver, gold, nickel, copper, etc.

OMEX negotiates rights to these ships with the insurers or owners and are able to retain 80 -90% of the value.  Unlike historical wrecks, 1-2 of these projects are completed each year.

In fact, the company has a target list worth over $800 million in potential recovery value.

Before we get to third core business, you may be wondering how a company can sustain a business based on a finite supply of projects.  How many shipwrecks could there possibly be?

Good question… and the answer may surprise you.  As a matter of fact, there are over 3 million shipwrecks around the world.  And, OMEX has a proprietary database with thousands of them.

Moreover, the top 100 ships in Odyssey’s database have a collective potential of more than $5 billion – with individual potential of more than $50 million apiece.

But just in case the shipwreck business dries up… no pun intended, the third core business is all about OMEX’s future.

Odyssey is applying its marine expertise and technology to discover, validate, and secure rights in various mineral deposits.  The company is working towards establishing a leadership position in this rapidly emerging field.

You see, valuable seafloor minerals have been too costly to recover or too difficult to access.  But now, technology makes that recovery more plausible.  And, OMEX’s shipwreck recovery technology is a perfect fit for the seafloor mineral business.

Basically, with 70% of the world’s surface covered by water, there’s a massive opportunity in this space.  In other words, OMEX has its source of future revenues streams already laid out on a silver platter.


In general, OMEX’s financial situation is reasonably solid.  The company isn’t turning a profit at this time, but revenue growth has been strong.  Of course, the timing of the company’s projects could make revenues and earnings difficult to forecast on any given quarter.

In the most recent quarter, revenues came in at $5.6 million, compared to $0.9 million a year ago.  That’s clearly a huge jump… and entirely related to the timing of big shipwreck recovery which included 61 tons of silver bullion.

In this case, the company’s big find resulted in $9 million in cash inflows for the prior quarter and should amount to more than $20 million in this current quarter.  In fact, the silver bullion find is expected to push OMEX’s profits into the black.

Regarding current profits, net loss came in at $0.9 million.  However, a one-time legal settlement cost $1.1 million – so without that, OMEX would have turned a profit. And, as I said, next quarter a profit is expected.

Meanwhile, the company is ending the year with a strong cash position of $31.7 million.  OMEX plans to use part of the cash to pay down convertible debt.  Another portion will go towards funding new projects.


As with any investment, OMEX does have a few risks.

Delays in project completion could result in wild swings in revenues due the nature of the business.

Geopolitical uncertainty could reduce overall demand for OMEX’s services and cause a slowdown in revenue growth.

Finally, changes in the regulatory environment could hurt the company’s business model given its dependence on permitting and licensing.


Using price ratios to analyze OMEX is challenging because of the uncertain timing of the company’s cash flows and profits.  The bottom line is the company has an enormous opportunity to reap the rewards of the numerous shipwrecks across the world.

Plus, the company’s entrance into the seafloor mineral exploration space provides significant future revenue potential.  Valuing the company based on standard metrics may pose a puzzle, but the common sense test tells us this company has substantial upside potential.

From a technical perspective, using the company’s 52-week high of $3.70 as a target price seems reasonable.  That means the stock has the potential to climb more than 100% from current levels.

Based on our analysis, we see OMEX climbing to $3.70 a share or more.  Buy the shares now for potential gains of 101% or higher!


BUY Odyssey Marine Exploration (NASDAQ: OMEX) up to $2.10 per share.

Recent price is $1.84

Use a stop-loss of $1.30 on this position.

Don’t forget your position sizing and stop-loss rules.


Portfolio Update

Here are some highlights from the past couple weeks…

  • Aware (AWRE) hit new a high, despite tough market conditions.
  • Given the market volatility we’re seeing recently, we’re going to start taking some profits off the table.  Let’s start by selling Parker Drilling (PKD) and collect our gains of 71% at the current price.


Category: PSB Monthly Issues

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