iGo – An operating company for FREE
This is a small cap play, you are basically getting the company for cash on hand and getting for free a growth story for a strong set of products. The company has $33M of cash w/ a market cap of $35M and zero debt. In the past 6 months, the company has signed huge distribution deals that will have a major impact on sales and cash flow. The company has been break-even on cash flow basis, so there is little risk of cash being wiped out while we wait for the new distribution deals to increase cash flow.
iGo develops universal chargers for laptops/cell phones/mp3 players/digital cameras. They basically sell 1 charger with multiple ‘tips’ for different products. Instead of carrying chargers for each device, you carry one iGo charger and a separate tip for your cell phone, digital camera, mp3 player, netbook, generic usb charger …. Each ‘tip’ sells for about $7, so it is very affordable. They also have a new ‘green’ product that saves ‘vampire power’ (think of it as a smart surge protector that cuts off power when not being used). Also the power adapters work at home/car/plane, so you don’t need a different adapter for each location..
A video about their new product that saves on Vampire product.
The play here is that the downside is protected by cash and the upside is big based on new distribution deals. Here is a list of distribution deals signed in the last 6 months:
– Sell Netbook chargers in 2400 Verizon Wireless (Sept 2009)
– Sell all products in 1000 Office Max (Sept 09)
– 300 Staples Canada stores (Nov)
– 500 Walmart locations (this is a pilot program, i think it could
grow substantially in 2010)
– deal w/ Radio Shack (can’t remember the store count)
– new European distribution deal (store count increased from 500 -> 3000 stores)
Before these new distribution deal and press coverage, the company was doing 15M in sales per quarter and was profitable. They have a 30% gross margins, could improve w/ top line growth. It is hard to get numbers on what the future sales will look like but the odds are very good that sales jump substantially w/ the new distribution deals.
Also, the company has been divesting from the low margin products to the high margin products, the direct marketed products are high margin products (so the adapters and new products that are sold via the distribution deals). So this will also substantially improve the gross margins.
Also management has been buying shares, w/ the CEO purchasing since 2008 (buying in the $0.60 – $1.15 range). See recent insider buying.
Currently the shares trade at $1.10, w/ $1.03 in cash on hand. I think the upside could be big and in a short period (12-24 months). There is basically no analyst coverage, so the shares are trading at a huge discount. I can see this company being bought out if the new distribution deals results in strong growth. If the growth doesn’t come, you can easily get out w/ little or no loss (i don’t expect the shares to trade below cash and don’t expect management to drain cash).