Lifetime Brands, Inc. (NASDAQ: LCUT): The Buyout Offer Nobody Saw Coming
NEW YORK, NY / ACCESSWIRE / March 16, 2017 / When Lifetime Brands announced its third quarter results in December of last year, shares began to sell off from its $18.80 high. Shares continued to sell off for the next three months, illustrating just how many lost interest in the company over this period of time. Shockingly, shares hit an all time low of $14.45 the day before Q4 results were announced!
Earlier this week, Lifetime Brands, Inc. released its fourth quarter 2016 results before market open. The results concluded 2016 as a year of record revenues driven by strong gains in key metrics across the board. This completely shattered bearish expectations, ending the slump as LCUT opened above $16/share. As the rally continued on massive volume, investors began to notice a surge in purchases of large blocks of shares. With large block purchases potentially signaling a buy out or an institution taking a position, a buying frenzy broke out, driving share price to $19 by the close.
After the close, the assumption was validated, as private investment firm; Mill Road Capital Management announced its proposal to purchase remaining shares of Lifetime Brands for $20. Lifetime Brands’ board of directors later confirmed receipt of the proposal, driving share price just north of the proposed price.
What Were The Signs Investors Missed
Although the acquisition is yet to be accepted by the board, the fact that many investors missed out on substantial gains remains.
So what did they miss?
The first thing they missed was the fundamental value of the company itself. They lost sight of Lifetime Brands as a leading global provider of home goods, with well-known brands like Farberware, KitchenAid, and others. Regardless of global financial outlook, well branded, non-luxury, products tend to have good sales- especially in home goods.
Following this vein of thought, investors ignored the robust financials of Lifetime Brands. Attesting to the value of its brands, the company has a proven track record in delivering robust sales quarter after quarter.
Finally, investors ignored the smart money. In life and in finance, it pays to be attentive. For many companies, insider activity is a great source of information that can be found in Form 4 filings. Looking through Lifetime’s filings reveals that the acquisition offer
was a long time in the making. Before making the offer, Mill Road Capital became a shareholder in 2011. Over the following 6 years, Mill Road carefully acquired shares to become one of its largest shareholders with over 10% of the company.
Even with a cost basis of $13.50/share, Mill Road has held onto every share, clearly demonstrating their conviction in the long-term value of Lifetime Brands. As other investors desperately sold their shares of LCUT month after month, the free falling valuation of the company became Mill Roads’ opportunity. Soon, the valuation was too cheap to ignore, and it’s easy to see why they pulled the trigger.
Lessons From Lifetime Brands
Lifetime Brands is a case study in underfollowed or misunderstood companies.
Here are the main takeaways:
Companies
with Strongly Branded products are hard to replace and tend to do well.
Revenues
from Sales and Growth in this Area Signals Strength
Insider
Activity that is net purchase is very bullish for a company
Immudyne (OTCQB: IMMD) A
Nearly Identical Company To Lifetime Brands
Similar to Lifetime Brands, Immudyne is a currently underfollowed or misunderstood company matching the takeaways that underpinned Lifetime’s success.
1) Immudyne Offers
Strongly Branded Health Products
Like Lifetime Brands’ dominance as a global provider of home goods with its brands like Farberware and KitchenAid, Immudyne is quickly establishing its position in national and global premium health products.
With a growing population of educated consumers, the demand for premium health products has never been higher. This can be seen in the recent growth for global skin care products, which is expected to reach $196 Billion by 2024 due to the emergence of novel organic skin care solutions sold on e-commerce, or direct to consumer, platforms.
By tapping into this developing market, Immudyne has experienced sudden and robust sales growth of its premium branded products. By incorporating its proprietary yeast beta glucan supplement into its products, the company developed a suite of patented product lines that have received endorsements from opinion-leading dermatologists. Utilizing a capital efficient direct marketing platform, Immudyne was able to scale this
product from inception to over $4 million in top line revenue over the course
of a year, highlighting the tremendous demand for premium health products.
In order to keep up with demand, Immudyne recently invested in its direct-marketing infrastructure to support continued growth in sales.
Anticipating similar orders of success, Immudyne is continuing to develop and add to their product lines. These include organic certification for its skincare line, a wrinkle eraser, and the imminent launch of a patented and dermatologist endorsed shampoo and conditioner designed to address hair loss.
2) Immudyne Is Posting Record Sales
As mentioned earlier, Immudyne accomplished $4 Million in top-line revenue in the first year of a new product. With newly developed infrastructure to keep up with the demand, it may be entirely possible to see a similar level of growth for this fiscal year as well. For context, Immudyne reported a 70% gain on its top-line in 2015. The following year of 2016, they more than quadrupled its 2015 revenue. More impressively, is the fact that this growth was accomplished with only ~$500k in outside investment.
Yearly Revenue
2014- $714,000
2015- $1,250,000
2016- >$5,000,000
expected
3) Strong Long-Term Insider Ownership At Immudyne
Despite the small size of the company, the insiders clearly believe its growth. Unlike many other small-cap companies, the management team works for equity over cash, with a combined cash salary under $20,000/month for all senior management. Moreover, with management, affiliates, and respective family member ownership accounting for over 60% of the common stock, Immudyne may have greater commitment and trust from its insiders than Lifetime from Mill Roads.
Following the Signs
In investing and in life, it is about learning from your mistakes. The majority of investors doubted the outlook for Lifetime Brands leading into this week; they were proven to be wrong. Investors, who sold their position prior to Mill Roads’ formal announcement, lost out on the opportunity for some meaningful returns.
With that said, there were a number of key features Lifetime Brands exhibited that foreshadowed the spectacular appreciation that occurred this week: strongly branded products, strong sales growth, and bullish insider activity. These three features are also uncannily similar to the smaller company Immudyne. With branded and endorsed products, the company has grown its revenue at an explosive pace. High insider ownership suggests long-term commitment to the company.
As new sales infrastructure continues to deploy and new products begin to reach market, the company should be able to make full use of its internal advertisement strategy.
Immudyne appears ready to continue executing on its business. But even if they are able to deliver the same double to triple digit revenue growth over the previous year, similar to Lifetime Brands, investors may be unable to recognize this value before it is too late. At the very least, the fundamentals seem to be the same for Immudyne and Lifetime Brands.
Applied Optoelectronics (NASDAQ: AAOI) Another Similar Company Gaining Awareness
Applied Optoelectronics demonstrates the same hallmarks discussed in earlier companies Lifetime Brands and Immudyne. The company, like both Lifetime and Immudyne, was once extremely underfollowed and misunderstood by the large majority of investors. Fortunately, Applied Optoelectronics is a prime example of the three metrics’ ability in forecasting future success. In under a year, investors have taken to the company in stride, driving share price from a low of $8.49/share in May 2016, to a high of $54.54/share last week, to its current price of $47.40/share. Accordingly, the market capitalization grew from below $160
million to $885.33 million today.
1) In Internet Technology, Quality Is the Leading Brand
Applied Optoelectronics is a market leader in providing fiber-optic networking products for Internet data centers, cable television, fiber-to-the-home, and telecommunications. Their products run the gamut from the smallest component to entire systems for enterprise applications.
Applied Optoelectronics became a market leader simply due to the quality of its products, which makes sense due to the highly tuned and mission critical nature of Internet technology. The company benefitted and continues to benefit from the significant increases in demand for bandwidth driven by an increasingly tech driven global world. With speed considered a modern necessity, the company’s fiber-optic technology has become invaluable.
2) Strong Proprietary Technology As The Engine For Growth
The demand for Applied Optoelectronics and its products has never been higher, due to the necessitated transition to fiber technology. The engine behind the company’s growth is their ability to internally manufacture lasers and light engines, which provides them with an unparalleled ability to scale and reach the market with performance leading products.
This is reflected in their financial reports, where for the fourth quarter of 2016, revenue increased 60% to $84.9 million over the same quarter of the previous year where $53 million was generated. When total yearly revenue is compared, consider $260.7 million in 2016 to the $189.9 million in 2015, representing only a 37% increase. Applied Optoelectronics’ most recent quarter strongly suggests sales are continuing to ramp significantly, foreshadowing substantial growth for the fiscal year of 2017.
3) Insider Purchases Again Foreshadows Substantial Appreciation
Applied Optoelectronics is now a much larger company, making it difficult to create a comprehensive overview of insider ownership. The company now benefits from large institutional ownership from multiple funds and similar institutions.
As mentioned earlier, it wasn’t until recently that investors began to understand and appreciate the value of Applied Optoelectronics. In an example much more striking than the case seen in Lifetime Brands’, in late May and early June of 2016, insiders Alan Moore, William Yeh, and Mike Chen, bought a substantial amount of shares, with a combined dollar volume over $1.3 million on a cost basis around $9.70/share.
Illustrating the confirmation power of insider buying, the company continued to post record sales over consecutive quarterly reports. As investors began understanding the story of Applied Optoelectronics, the valuation more than quadrupled in less than 10 months from when the insiders first bought shares.
Still The Same Company, In the Right Place, In the Right Time
Although Applied Optoelectronics has experienced phenomenal growth over the last 12 months in both valuation and revenue, their most recent quarterly report strongly implies the potential for continued growth and ramping sales for this fiscal year.
With that in mind, the explosive growth in valuation seems unlikely to happen again. Having grown over four times larger, it would be a fair assessment to consider the company close to a fair valuation. Moreover, short of all the insiders dumping shares in a short span of time, it is fair to say insider activity will no longer be as impactful or foretelling for this substantially larger company.
All things considered, Applied Optoelectronics is an ideal example demonstrating the ability of the three metrics in predicting substantially undervalued companies.
About One Equity Stocks
One Equity Stocks is a leading provider of research on publicly traded emerging growth companies. Our team is comprised of sophisticated financial professionals that strive to find the companies and management teams that will outperform the market and deliver investment returns to our subscribers. We are not a licensed broker dealer and do not publish investment advice and remind readers that investing involves considerable risk. One Equity Stocks encourages all readers to carefully review the SEC filings of any issuers we cover and consult with an investment professional before making any investment decisions. One Equity Stocks is a for profit business and is usually compensated for coverage of issuers. In the case of Immudyne, we have been compensated 250,000 shares of common stock in for advisory, marketing and business development services. The owner of One Equity stocks is long IMMD.
SOURCE: One Equity Stocks, LLC
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