TPS Position Update – November 25, 2015

| November 25, 2015

TPS Position Update

. . . . Flexible Solutions International Inc. (NYSE: $FSI) – Hold 

It’s been a wild ride for the company, whose fortunes are largely linked to the energy business.

FSI develops and manufactures biodegradable polymers for oil extraction, ingredients for water treatment, and crop nutrients.

We would like to be patient and give Flexible Solutions a chance to ride out the problems in the energy business.  

The balance sheet is stronger than it was a year ago.  Long-term debt has been reduced.  At the end of 2014, it was $754,000 compared with $1.4 million at the end of 2012.

Stockholders have experienced a dizzying past few months.  The stock hit $2.72 on June 8th, then sank to $1.12 less than a month later.  For the past few months, FSI has been trading between $0.97 and $0.67.

In Q3, there was a modest net income of $319,000.  Expenses remain high, but are slightly lower than in Q3, 2014. 

Is there anything to spark meaningful optimism? 

CEO Daniel O’Brien says, “Most of the top line revenue miss was due to the heavy flooding in Texas that prevented WaterSavr sales there.  We look forward to possible resumption of top line growth in the coming quarters. We are also concentrating on multiple US states for 2016 Watersavr sales to reduce the chances of losing all sales to a single weather event.”

We’ll be patient, and look for a rebound.  We recommended FSI in February 2015 at $1.20, and expect the stock to make up for lost ground and edge higher in the months ahead.

. . . . McClatchy Co. (NYSE: $MNI) – Hold 

We’ve been pleased with the stock performance of the Sacramento-based newspaper publisher and media company.

We recommended McClatchy on August 11th at $0.96.  It promptly ran up to $1.53 and has now eased off to $1.48.

It is always tempting to take profits.  But here’s why we are advising a hold.

We expect earnings growth at McClatchy to grow and to push the stock price even higher.  The company reported a Q3 loss of $1.14 million against revenues of $252.2 million. 

In previous quarters, the losses have been significantly higher.  Expenses are trending down.  Free cash flow is growing.

The company is buying back stock in a repurchase program.  Close to 2 million Class A shares have been repurchased, and unless money is shuffled around internally, there is more than $12 million on hand designated to buy back more stock.

But let’s remember that there is nothing dazzling about the newspaper business.  It’s clearly still in decline.  

We look for management at McClatchy to continue to focus on the growth of digital advertising and subscription revenues:  digital ad revenues are doing well, with double-digit growth in September. 

Action To Take

  • Hold Flexible Solutions International Inc. (NYSE: $FSI)
  • Hold McClatchy Co. (NYSE: $MNI)

Category: TPS Update

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