Stock of the Week: The No. 1 Content App in a HUGE Market
Alpesh Patel|October 30, 2023
There’s an age-old saying about investing: “You can’t fight the trend.”
And when it comes to this week’s Stock of the Week… that’s certainly true.
When this company came across my desk… all I could do was shake my head.
It’s the No. 1 phone personalization app in the world… and it proudly boasts that it helps your phone reflect you.
Are you kidding me?!
Younger generations love it, though. The platform has 30 million active users… and that’s just a small slice of its total addressable market.
Plus… the company is very good at converting capital into cash… the stock is cheap… and volatility has pushed the price down so far that it could easily rebound eightfold.
It doesn’t matter what I think of the business. The numbers tell us all we need to know.
Get the details on the company – including its ticker – in my latest video.
Click on the image below to watch it.
It’s Stock of the Week time again, friends. And as you know, as a hedge fund manager, I get a lot of information crossing my desk. The job of my team is to narrow down and curate the companies I should look at for Stock of the Week, and then I narrow it down even further to one company, and that’s what we’ve got.
I’m Alpesh Patel, founder of GVI Investor and of a hedge fund and asset management company. I’m going to talk to you this week about Zedge (ZDGE).
It’s a content distribution platform. Its content platforms enable consumers to personalize their mobile devices with free, high-quality ringtones, wallpapers, home screen apps and all of those things. And it’s got the Zedge app.
And you are probably like, “What? Are you kidding me? Who cares?”
Well, it provides Guru Shots, a platform of skill-based photo challenge games… all of this kind of game stuff, educational stuff, fun stuff. It gives you badges, rewards, votes… all the kind of stuff that all the kids seem to like.
Now, none of that would make me excited if it wasn’t for some of the numbers. The company has 30 million active users around the world. It’s a good number, but it’s minuscule compared to what the company can achieve. It’s got 436 million app installs. That pretty much means about 9% of people who install the app are active on it, and that’s a good number.
It is the No. 1 phone personalization app in the world. It helps your phone reflect you. Now, I know. For those of you who are my age, you’d think “What? Who cares?”
But the younger generation… They’ve got money to burn and time to spare.
Here’s also where it gets exciting. Its generative AI opens doors to creators and potential exponential growth. Yes, they’re clever. They know they’ve got to use the word “AI.” But even more importantly, they know they can use AI to make things better for their users because of the speed at which AI can be adopted.
I know from my own company that when new technologies have come up before, we’ve not been able to get our hands on it because it’s too expensive, too complicated. AI is the first time we’ve been able to do that and implement it straight away, I’m proud to say, and you’ll have seen some of that from GVI Investor.
Total revenues are only $6 million. So you can see it only takes a little bit more, and that’s from income, or revenue, of $21 million. The market cap is just $30 million. You can see there’s a lot more room to the upside as well.
On my Growth-Value-Income rating, my proprietary algorithm-based scoring mechanism, which scores stocks based on their valuation, their revenue growth, their dividend yields… it’s got an 8 out of 10. Now, anything with a 7, 8, 9 or 10 meets my goal.
The forecast P/E ratio is a mere 11.8 multiple. In other words, the current share price is at a multiple of 11 times future expected profits. That’s cheap. That’s cheap on any basis, whether you look at its own history, whether you look at the tech sector, whether you look at the market as a whole… That’s cheap. Now, unless the company messes it up, it should do better. The share price should go up.
Cash return on capital invested (CROCI) – and if you want to know why that’s important, click here – is used by Deutsche Bank Wealth management, and it’s used by Goldman Sachs Wealth Management. And a CROCI of 27% puts this company as one of the best at generating cash from the capital it invests.
Well, of course, it’s making apps. You make it once and people keep buying the thing. It’s like making sweets.
The price has been going in the right direction. Sortino – in other words, average return versus risk – is at a multiple of 0.6. That’s good. It’s one of the higher companies on the stock market.
Volatility is high, which is a bit of a worry. And, in a perverse way, it’s good.
The stock price – after all the high expectations people had – fell from $17 down to about $2. It’s got a base there. It’s been at that for about a year. The good news about that is people have seen the potential that it could go to $17 – that could be an eightfold increase if it went back to that.
Now, it’s difficult if not impossible to do a discounted cash flow analysis on this company because with smaller companies with small market caps, that’s always the difficulty.
But there are a lot of things that make it my Stock of the Week. Thank you very much.