BENJ GALLANDER and BEN STADELMANN
Sometimes people are kind enough to take the time to send us suggestions for stocks to consider. Often we recognize that they have no idea about the kind of positions that we acquire as the companies have bupkis to do with our methodology. Frequently it is obvious that they are just pushing their own “book,” hoping that we will promote their positions and the stock price will shoot up. Our modus operandi is to respond politely and the world moves on as it does.
A large number of the corporations are penny stocks. They are full of hype and hope for those looking from a certain angle. What they are not bloated with is revenue, as often it is non-existent. Unless sales are exceedingly likely in the near term, those are stocks that we avoid like the plague.
However, Benj added one of these diminutive positions to his personal portfolio just over a year ago at 17 cents (US). Vasomedical Inc. (trades “over the counter,” ticker VASO) is a medical equipment company that has been around since 1987. Once upon a time, circa 2001, it traded above $5. Soon afterward, it careered downward to its penny status where it has remained. While getting back over a buck sounds fanciful, a double or triple from the current level seems highly plausible for a number of reasons.
After being stuck in first gear, the enterprise does have real revenue that is growing. Year over year there was a 128 percent increase in the most recent quarter, hitting better than $17 million. A little bit more than half was due to a takeover, but even without this, sales plumped up almost 14 percent. Comparatively, in 2010, revenue was a petite $4 million. The increase helped to turn the bottom line black to the tune of $1.3 million, a happy gain from the decade-plus of losses.
Insiders seem bullish. They currently own about 43 percent of the company, and that amount has increased this year as a number of them have been making purchases.
One aspect of the company that seems particularly upbeat is that VASO distributes diagnostic imaging products for GE Healthcare. This team-up with a major gives Vasomedical more cred.
One area that could be of concern to investors is that cash has dropped to $1.9 million from north of $9 million, due to the NetWolves acquisition. The lack of funds would be worrisome if there was a lot of debt on the balance sheet but it is at a reasonable level. Worth noting also on the negative front is that the share count has increased from about 100 million in 2009 to 158 million today.
A potential problem for those interested in purchasing a substantial position in this entity is that the average trading volume is about 65,000 shares a day. Combine that with the stock price of 20 cents or so and establishing a position is not easy. Benj did manage to buy a whack of shares in one fell swoop as some days it does trade in the six figures. Those days are not rare, but the averages are offset by when the stock does not trade at all. This is not unusual on the OTC.
When looking to buy penny stocks, risk is reduced greatly when the venture has revenue, nominal debt and a black bottom line. Knowing that insiders have a healthy position and are acquiring additional shares also helps. VASO certainly qualifies and has the potential to catch an upside wave.