TPS Trade Alert – September 30, 2014
September 30, 2014
Recommendation:
Buy Envivio (NASDAQ: ENVI) up to $2.00 per share.
Trade Rationale:
The other night I was watching a live stream of my favorite baseball team vying for a playoff spot. What was really cool about it was how crisp and clear the picture was… on my phone!
Yes – it may be commonplace for some, but I’m still impressed by how easy it is to watch sports, movies, video, etc. right on my smart phone. There’s no doubt video technology has come a long way since I was kid.
Several advances in technology have allowed video services to proliferate. Not only can you watch video on much more than just your TV, you can get on-demand material of the best quality.
For companies, video also provides one of the best way to market to their customers. Video ads tend to have a much greater click rate than say, banner ads.
But here’s the thing…
Creating video services and products is not some simple matter. Content comes from all over the world in multiple formats, on hundreds of network, and thousands of different devices.
Clearly, the complexity in this space is extreme. The different methods of transferring and processing video data can also be very expensive.
That’s where Envivio (NASDAQ: ENVI) comes in.
ENVI develops software-based IP video processing and distribution solutions enabling the delivery of high quality video to consumers. The company’s solutions allow service and content providers to deliver broadcast and on-demand video services on multiple screens of multiple devices.
Essentially, ENVI can make video work on just about any product, whether it’s a TV, tablet, smart phone, laptop, PC, or gaming device. Envivio solves the complexity issue by using software as a solution.
The company provides a unique software-based method to provide top quality and reliability to customers. It does this through two primary offerings, Envivio Muse and Envivio Halo.
Muse is a multi-screen software product designed for live or file-based video transcoding and distribution to multiple devices. Halo is a network media processor that performs content processing and adaption for consumer devices.
Here’s what we like about ENVI…
The video-anywhere industry is already huge and growing. There are thousands of channels and hundreds of devices for video usage. And ENVI is already a leader in the space.
What’s more, ENVI is a pure-play investment for those looking to buy into the huge increase in video consumption. Moreover, the company’s software-based model means its products are highly leveraged against the various industry standards.
From a financial standpoint, the company has several positives.
While ENVI’s revenue has fluctuated from quarter to quarter, its gross margins have been getting progressively stronger. With margins in the 66-68% range, the future looks bright from an operating income perspective.
Perhaps more importantly, the company has a $42 million cash hoard and no debt whatsoever. That means the cash position alone is worth about $1.50 per share. In other words, the rest of the company is wildly undervalued.
Clearly, with that much cash, ENVI could be aggressive in acquisition or merger deals. Plus, lots of cash leads to plenty of strategic flexibility.
Finally, at the current price, ENVI is trading at just 1.2x sales and 1.3x book value. That’s inexpensive regardless of industry.
Let’s buy shares in EVNI while it’s trading at dirt cheap prices.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Envivio |
| Ticker: | ENVI |
| Recent Price: | $1.80 |
| Market Cap: | $49.6 million |
| Avg. Daily Volume: | 72,955 shares |
Chart:
Category: TPS Trade Alert
