Support.com Inc is a provider of cloud-based software and services for technology support. The Company offers outsourced support services for service providers, retailers, Internet of Things (IoT) solution providers and technology companies. Support.com Inc is listed in the United States (NASDAQ Stock Exchange) under the ticker SPRT.
Below I present my key arguments for why each margin of safety criteria is considered to be fulfilled. At the end of the write-up I also include some “other factors and characteristics” that I consider to be of importance. Hopefully, with this leaner format, compered to previous write-ups, I’m able to speed up my writing process as I take my scribbled down back-of-the-envelope notes into something that’s worth publishing.
Margin of safety
1) Selling below liquidation value?
- SPRT is currently trading at a price-to-net-current-asset multiple of 0,65x.
- Market capitalization = $31,7M
- NCAV = $48,7M
- The company’s net-current-assets mostly consists of cash and cash equivalents and short-term investments.
- SPRT has a negative enterprise value.
- SPRT is selling at a price-to-net-cash multiple of 0,87x.
- Net cash = $36,5M
- SPRT has accumulated $143M of net operating loss carryforwards. This amount I consider to be somewhat of a hidden “asset” and something that could become a valuable commodity for the company in the future.
2) Proven business model?
- As of the latest financial report (Q2 2019), SPRT has posted three consecutive quarters with positive net income.
- One should note that SPRT has struggled a lot historically (e.g. the company has negative retained earnings of $-211M). However, since activist investors took control of SPRT in 2016 and a new management was put in place things have been moving in the right direction profitability wise. Mainly as a result of heavy cost-cutting.
3) Sound financial position?
- SPRT has no interest-bearing debt on the balance sheet (i.e. SPRT’s debt-to-equity ratio = 0x).
- The company has a negligible amount of operating leasing not on the books.
- The company is profitable and sits on a large pile of cash.
4) Responsible management?
- Management that has been in place since 2016 seems responsible and shareholder-friendly according to their track record as operators and capital allocators of SPRT. They seem to have a clear plan of execution to turn the company around and/or unlocking the value of trapped assets.
Other factors and characteristics
- SPRT is a nano-cap market capitalization company ($31M).
- Insiders together own 15,4% of the shares outstanding.
- SPRT is currently trading at all-time lows.
- SPRT recently reported the termination of certain agreements with one of their customers. As a result, the share price took a big hit. The market, in my opinion, overstated the negative consequences of what had been reported. This provided me with the entry point for my position.
Disclosure: The author is long Support.com INC (NASDAQ:SPRT)
Liquidation Almanack 