TPS Trade Alert – July 23, 2013
July 23, 2013
Recommendation:
Buy Overland Storage (NASDAQ: OVRL) up to $1.20 per share.
Trade Rationale:
The type of companies we recommend for our portfolio tend to fly under the radar of the average investor. Sometimes they’re just too small to be noticed (e.g. they lack analyst coverage). Other times, it’s the lack of buzz associated with the companies (e.g. products are boring or hard to understand).
Of course, these are the opportunities we like to scoop up and profit from. Unnoticed or “boring” companies can still make us plenty of money.
Here’s the thing…
Because of the lack of publicity many small companies receive, when a company releases a killer new product, it can be largely overlooked.
And that’s when it makes the most sense to buy.
The very situation I described is occurring right at this moment with a company calledOverland Storage (NASDAQ: OVRL).
OVRL provides data management and data protection services. The company’s products allow small and medium business and enterprises to respond to growing or changing data storage requirements.
Overland’s products include storage area network solutions, network attached storage solutions, tape and virtual tape solutions, and services related to data storage management. Basically, these products are used for data storage throughout an organization and over the course of the entire data lifecycle.
There are two primary reasons why OVRL’s products are beneficial to clients. First, they allow companies to spend fewer resources on IT and instead focus on the needs of the customer. Second, the products provide a comprehensive, long-term solution for data storage – which is consistently becoming more complex, expensive, and important over time.
However, what we’re really interested in with OVRL is the product they just developed.
You see, the company has partnered with Sphere 3D to provide a revolutionary new technology. This innovative technology is the first integrated solution which delivers the full functionality of an application, operating system, or hardware to any device.
In other words, business users will have complete, secure access to any piece of business software they need on their mobile devices.
Think of how huge this could be. A user will be able to gain complete access to spreadsheets, presentations, software development, video production, CAD, or whatever they need from anywhere. Just think of the productivity gains!
In a nutshell, the technology uses OVRL’s secure data storage solutions with Sphere 3D’s virtualization solutions. And the best part is, the market for this technology is enormous.
Companies are increasingly allowing employees to bring their own devices to work. In fact, in 2013, there are an estimated 198 million employee-owned devices being used at work. By 2016, that number is expected to jump to 405 million devices.
Clearly, there’s a gigantic opportunity to be had. And OVRL now has a first mover advantage.
This new, exciting technology couldn’t come at a better time for the company. In the most recent quarter, revenues declined from $15.2 million to $11.6 million year over year. Meanwhile, net loss increased to $5.1 million from $3.8 million.
The drop in revenues and earnings is due to a macro-based slowdown in data storage spending, especially out of the Euro-area. In other words, there couldn’t be a better time for the company to launch a new source of revenue and a groundbreaking product.
In addition, OVRL’s cash situation is in a sustainable position while the new product gets off the ground. The company has $14.3 million in cash compared to $16.8 million in debt, with current assets at a reasonable 1.3x current liabilities.
Here’s the most exciting part…
OVRL is trading at just 0.64x revenues. Meanwhile, the data storage device industry trades at roughly 1.3x revenues on average, or twice as high.
Keep in mind, a small company with a brand new product is going to be focused more on revenues than earnings. So, the price to sales ratio is the one we want to look at here. And, OVRL is clearly undervalued based on this metric.
As such, now’s the time to grab shares in Overland Storage before other investors discover the company’s new, innovative technology. Once the word gets out, the stock could really fly.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Overland Storage |
| Ticker: | OVRL |
| Recent Price: | $1.08 |
| Market Cap: | $32.3 million |
| Avg. Daily Volume: | 26,621 shares |
Chart:
Category: TPS Trade Alert
