This is my second "official" pick on these forums, you can check out my first, CAGC, here.

Ven's Pick #2: ALIF.OB
Current price (as of posting): .88

 

Financials:

Trailing P/E: 3.89

Non Seasonally-Adjusted Forward P/E: 4.03  

Price/Sales: 1.65

Price/Book: 1.29

Current Ratio: 3.92

Background:
Incorporated in the early 90's, ALIF went from riches to rags alongside its tech buddies. It plummeted to pink sheets and was seemingly doomed until 2003 when they dramatically shifted focus to Mobile Gaming. They continued to struggle, with the CEO saving them from certain bankruptcy with personal loans & deferred compensation a long the way, until the release of the iPhone in 2007 which has subsequently propelled them to profitability over the last two years. They have since become a leader in mobile gaming with multiple games amongst the best selling list and their proven quality has landed them multiple sponsorships with flagship companies such as Redbull. Mobile gaming currently accounts for 80% of their revenue.

Pros:
* Globalization of iPhone and other smart phones will exponentially increase ALIF's market share.

* Proven quality. They have multiple titles that have been best sellers on the iPhone.
* Good financials. They have recovered significantly from prior years and are sufficiently capitilized, IMO, with positive cash flow.

* A founder and CEO who has been with them for over a decade. On multiple occasions he has infused his own cash to capitalize the company.

 

Cons:

* The greatest risk to this company is their severe revenue concentration. Three customers accounted for nearly 94% of their revenue last  quarter. While their bottom line has stayed in tact, in the first 2 quarters this year they wrote off 48% of total net income to provisions for losses. This is key!

* Thinly traded, over the counter.

* Minimal barriers of entry to their industry (mobile applications). Could become significantly more competitive if major players enter the market and ALIF is unable to maintain their competitive advantage.

 

Catalysts:

* The major long-term catalyst is obviously the expansion of the smart-phone market to both developed and developing countries, in particular, China and India. This will exponentially (literally) expand ALIF's market. If they maintain their competitive advantage (which is based almost solely on quality) they stand to grow exponentially as well.

* The short-term catalyst to take notice of is their account receivables. As noted, they wrote off 48% of their total net income in the first two quarters this year for A/R losses. In the same period (Q1 & Q2) last year they wrote off only 1%. This tells me that a major client defaulted on their payments. I see this as a major earnings catalyst for Q3, seeing as how I believe it is highly unlikely they will provision such high losses again. I believe they have weathered the storm and will see a significant increase in collectable A/R’s.

* Look for earnings early November.

 

Conclusion:

ALIF is a high growth company in a high growth industry trading at a significantly discounted price. The risks, however, are clear. As seen by their last two quarters, their revenue is extremely concentrated and the financial health of their customers can majorly impact ALIF’s bottom line. Nonetheless, even with significant loan-loss provisions in Q1 & Q2 this year, they achieved impressive top and bottom line growth. With proven quality in an exponentially growing market, I view ALIF as a great long term holding, and I look for continued top line growth combined with declining loan loss provisions to provide a significant catalyst to Q3 earnings on the upside.

DD people! Feel free to ask any questions.

Veneratio

micro stocks aren't my thing. For those of you who are interested, ALIF is in a buy position at 87 cents, with a 3 month high of 93 cents. 3 month chart also shows a steady increase on the overall trend line, with a standard deviation off the trendline of about 3-5 cents. I'd say if you bought now at 87 cent you might shoot for 93 again; 6.5% profit.

Speculation: iPhones probably sell real well in Dec, the software probably picks up more the month after christmas as people begin to use them.


Thanks for sharing Ven

Owl said: Thanks. You make a good case for this company. I'm thinking of picking some up. But I have to wonder how good this founder/CEO is, if the company wound up dropping to the pink sheets, and they've lost money for ... 8 of the last 10 years?

 I'm working on a more in depth review that goes much more into this.

You have to completely ignore all years prior to 2003 because that is when they completely changed their business model. Up to 2003,  they focused on artificial intelligence(hence their name) and programmed "smart-bots" and a bunch of other stuff that is far beyond my intellect, ha. They were de-listed down to pink after the dot-com bust and were fighting for survival until the release of the iPhone which opened the doors for mobile app developers here in the U.S. It's not a coincidence they turned a profit for the first time when the iPhone was released, and their numbers have been stellar since then.

I see the CEO as a tremendous asset. I read through their old annual reports when they were constantly on the verge of bankruptcy, and instead of letting his company go under he fought for it and put his money where his mouth was. He forewent a salary(5% interest added albeit) for years and kept the company liquid with personal loans on multiple occasions.

Young

I strongly advise against trading this on a technical basis. I have no intention of flipping this pre or post earnings. It's a company I strongly believe in fundamentally. If it does pull-back to mid 70's which seem to be a popular support level, I plan on adding to my position.

While I have this review before me, thank you Ven, can you give me some
insight into what the financials mean from an investment point of view?

In otehr wordds, why are these good? or not?
What is a trailing P/E?

Financials:

Trailing P/E: 3.89

Non Seasonally-Adjusted Forward P/E: 4.03  

Price/Sales: 1.65

Price/Book: 1.29

Current Ratio: 3.92

Here's a helpful dictionary of investment terms: http://www.investopedia.com/dictionary/default.asp

Ven- what sort of triggers would you be looking for on this stock. Whats your anticipated hold timeframe.

YoungPunk said: Ven- what sort of triggers would you be looking for on this stock. Whats your anticipated hold timeframe.

Short-term I'm looking at Q3 earnings which will be released sometime here soon (Q3 last year was released early November).

I'm looking to hold long-term but I will be closely monitoring new competition. My major concern is that as the market expands it will attract console game devs such as Take-Two, Vivendi, ect whose experience far surpasses ALIFs. ALIF currently operates in a niche market so this isn't much of a concern for me now but I'll be keeping a close eye on it.

Good point, but the past is the past, it's irrelevant whether or not his new-found success was stroke of luck or not. He has an undying commitment to his company which I view as a tremendous asset.

Apple's Q3 results confirmed my analysis... ALIF's market is growing exponentially right before their eyes. It's a dream come true for them because all they have to do is sit back and continue to deliver their product. If this stock doesn't see a modest uptick tomorrow from Apple's results I will be significantly adding to my holdings.

Out of curiosity, did you buy, Owl? :P

Good luck to all who did!

Owl said: Haven't bought yet, but still considering it. I don't have much unused cash right now.

 I hope you don't mean that, Owl. The amount of cash on hand should never dictate a decision to buy. Rather, the relative worth of a particular company should. If you find a company that is great but you don't have the cash, never hesitate to judge it against your current holdings. If it's a better value, sell some of your current holdings, and make room for it!

(obviously taking into account the taxman & trading costs)

Owl said: Yeah, I like all my current holdings. But I just picked up a few shares of ALIF for .86. Seemed like a good deal.
Maybe I'll sell GRMN to have some more cash ready; it's less exciting than ALIF.

 Good decision, 7% ain't too bad for a day's work :p. For the sake of me not being proven wrong... take the money and run!!! haha jk

Hopefully this reviewed inspired some of you to take a closer look into ALIF. I rarely make predictions, but when I do, I back them with a tremendous amount of research, and of course, my own money.

Good luck!