GOAM

[David Randolph]

It's already 8:30 and I don't have time to fully explain this pick. I was impressed by the chart, made some quick fundamental tests and was .

Then I went to Yahoo to see if I could find valuable information (it's rare, but), well, I just wanted to see what's going on with the stock, over the short term.

Found an excellent thread from a user, that completely explains GOAM's business and future prospects. Confirmed some of the facts and they're true.

GOAM is flying high, but it is a $14 M market cap company with promising fundamentals, not the crap people are pushing 200 or 300% in a day and then fall back to the prior level. GOAM won't ever be a big company (not with the current business model), but it will probably be a small cap with $100 M to $200 M market cap.

The plan is to buy GOAM below $6.30 or around the open, 6.66% of the portfolio, as always.

[tokyopua]

Averaged in at 5.85 after chasing a bit from 5.68 initial bid, but it looks like it wants to go higher, nice volume, thanks for the heads up David!  

[tokyopua]

Yeah baby, jumped in the shower and when I got out its gained 7%    Go go GOAM!

[David Randolph]

Averaged in at 5.85 after chasing a bit from 5.68 initial bid, but it looks like it wants to go higher, nice volume, thanks for the heads up David!

You're welcome tokyopua

Now let's make a complete analysis on GOAM.

1. Introduction

GOAM popped on my technical filter as an attractive short term play. I made a few fundamental tests and it passed. Then I went to Yahoo and found a deep and comprehensive study on the stock. Confirmed some of the data. And I recommended the stock. Sometimes one has to act on less than complete information (I would say it always happens this way).

2. Profile

GoAmerica, Inc. (GOAM) provides various accessible communications services to people who are deaf, hard of hearing, and/or speech impaired primarily in the United States.(complete profile here)

3. Technical Analysis
3.1. All History Chart



Terliso suggested I should use a semi-log scale on the all history chart, but I like it more this way, because it shows the real prices traded on the stock (of course, there were reverse splits on GOAM, it has never been at $1,400 - but it has traded at $1,400/$6.17 = 227 times more than it is now - this in share price terms, but probably not in market cap terms)

3.2. Medium Term Chart



There can be huge run ups (and downs) on GOAM, because it is such a small cap. We'll get to that in a moment ... the medium term chart shows that a move up to $40 or $50 is entirely possible.

3.3. Short Term Chart



The short term trend is very bullish, with 5 white candlesticks in a row. There will be red candles along the way, but there's no doubt GOAM is awake and pushing higher.

4. Fundamental Analysis
4.1. Number of Shares Outstanding



There's been a slight increase in the number of shares outstanding, but sill, just 2,338,451 shares. The current market cap is 2,338,451*$6.17 = $14.43 M

4.2. Liquidity



The balance sheet is healthy, with the current ratio at 2.78 and $4.26 M in working capital. Also, $3.65 M in cash.

4.3. Revenues



This revenue graph doesn't tell the real story, because it has continued and discontinued operations. But get this from the Q3 results:

«Total revenue for the three months ended September 30, 2006 increased by 93% to approximately $4.6 million, compared to total revenue in the previous quarter of approximately $2.4 million; and an increase of 259% compared to total revenue of approximately $1.3 million in the third quarter of 2005.»

4.4. Profits



You almost can't see it on the chart, but that's a $4.08 EPS estimate for 2007. I made my projection based on this study.

I'm much more conservative than this zibeaster, I would say a 10 times earnings multiple would put GOAM trading at $40.80 in 2007. I don't believe in a 20 times multiple because everybody knows this company's market is limited, so it can't sustain an above average earnings multiple. That's for companies that have the possibility to grow at above average rates for the long term (at least, that's the expectation).

4.5. Recent News

Here's the company selling its unprofitable business:
GoAmerica Announces Sale of Prepaid Division

And this is the impact (values in thousands):

«The sale closed on October 2, 2006 and the  Company  recognized  a gain on  sale  of $6. The  Company  received  total consideration  of $131 which  consisted of the purchase price of $75 and working capital  reimbursements  totaling  $56.  The Company was paid $20 at closing and $111  is  payable  under a  guaranteed  promissory  note  payable  in 5  monthly
installments beginning on October 31, 2006.

Total revenues related to the discontinued operations were $894 and $1,027 and $3,644 and $2,452 for the three and nine months ended September 30, 2006 and 2005,  respectively.»

The revenue impact isn't big, since on Q3 the company had revenues of $4.551 M, with 77% coming from Relay services, the fastest growing component.

You need to read these quarterly results: GoAmerica(R) Reports Improved Q3 Results

You can see the fundamental change within the company, how fast it is growing and how close it is from profitability. I guess Q4 will already show a profit, say, of $0.20 a share.

5. General Overview

The key on GOAM is the extremely low market cap and number of shares outstanding. If they just make a small net income that will translate into a high EPS number. With the sale of its prepaid calling card division, Q4 results will shine.

But much more important than that is the outstanding revenue growth of their new business, coming from www.i711.com. The following was a very positive development:

«In June 2006, the Federal Communications  Commission certified the Company
as an Internet Protocol Relay and Video Relay Service Provider. As a result, the
Company  became  eligible  to  be  compensated   directly  from  the  Interstate
Telecommunications  Relay Services Fund for  reimbursement of their  i711.com(R)
minutes and began  recognizing  the full revenue from these minutes along with a
related cost of revenue for the costs  associated  with these minutes,  which is
provided  by  Nordia.  Previously,  the  Company  relied on Nordia to obtain the
reimbursement  amounts on the Company's behalf.  This previous practice resulted in the Company  recording  only a portion of the total  revenue from the service provided as the Company was not the primary obligor.»

Now the state is paying for all this. It's nice to sell a service that costs $0 for costumers, where someone else has to pay (and it always pays). From what I've read, these services have high prices, of $1 to $6 a minute for a phone call and a video call, respectively.

Of course, this company won't grow to be a big company, but it can and will probably grow from a $14 M market cap to a $140 M. That's all we need

6. Trading Plan

Buy and Hold GOAM.

[tokyopua]

Wow, so by that analysis you have, this is a potential 10 bagger  in the dream scenario, and a 5 bagger  by your conservative estimates.  To quote Borat:  "Niiiiice".

But this thread feels a bit lonely right now, kind of like when I was in TSM and it was just you and I corresponding about it almost a year ago, lol.

Are there any other fellow 3SOF members who bought this?  It appears to have the most potential of any pick in the portfolio at present based on the fundies, so there must be...

[422fwhp]

Are there any other fellow 3SOF members who bought this?  It appears to have the most potential of any pick in the portfolio at present based on the fundies, so there must be...

Yes!  In at $5.59

[la-onda]

invested @ 6.02 $ 

[David Randolph]

It's nice to have some company here

Since this looks like such an extraordinary pick, I shared it with some friends and my wife ... just because people here in Europe think the US doesn't have any social policies, but as I see it, you have better social services than us (well, at least than in Portugal, probably not as good as in Sweden, Norway or countries like that - of course, Southern Europe is much poorer than Northern Europe).

Anyway, a friend of mine (which is a wise stock investor), studied the stock and thought it was great, but he had two worries:

1) Technology. A computer possibly can do what GOAM makes, the relay service. I think that's true, it might be possible (and I guess there are some sites that already allow passing text to voice to a phone call).

I think this is a valid concern, but it will never be the same thing. Take translation services for example (my wife is a professional translator - but she works in an investment bank, nevermind). One could think that computers can make translations, so translation services companies would be out of business soon. Nothing is further away from the truth. Computers can't do it correctly, at least, not for now.

Also, that video relay service, that translates signs language into a voice phone call, can't be done by a computer, not now and not for years to come. And that is a $6 a minute service.

2) He told me the fact that the government is paying for the service is a weakness, not a strength. He says the government can shut the door on these companies, or reduce the price it pays for the phone calls.

I don't think so, because it would be politically indefensible. Once you give something to the handicapped community, you can't take it away, or the media and public will crush you. For example, the Portuguese Government (here I go again, but it's where I live, I don't think it is much different from there on this case) took away some tax benefits for handicapped persons who had an above average income, and they immediately dived in the polls, as the media and opposition jumped on the subject.

So, government won't take away this benefit. And if they lower the price they pay too much, companies will no longer provide the service and the outcome is the same on the political front.

These are peanuts for the federal government, probably they will never touch this. On the other hand, the fact that deaf and speech impaired people can make phone calls for free, will probably add to demand for the service (its already happening, at a very fast pace).

I've addressed these concerns but they are valid and probably there are more. But the opportunity is higher than the risk, and even my friend is trying to buy the stock (the cheaper he can get, of course )

Technically the stock made a pause yesterday, which I welcome. The trend remains bullish and I will continue holding GOAM.

[Dory99]

I also bought GOAM @ $5.85/shr on Wed... very nice analysis, David!

[buddjas1]

At least superficially, the analysis looks okay.  I only question the revenue projections, for which there was no substantiation--just speculation.  I took a test position at 6.10 today.  Thanks for the head up; I hope it flies.

[njshiva]

In @5.55.
From what I have observed in the past GOAM makes crazy moves.. eigther way 

[David Randolph]

I also bought GOAM @ $5.85/shr on Wed... very nice analysis, David!

Thanks Dory99, I believe you'll make money on this one, if you have the necessary patience.

At least superficially, the analysis looks okay. I only question the revenue projections, for which there was no substantiation--just speculation. I took a test position at 6.10 today. Thanks for the head up; I hope it flies.

Ok buddjas1, let's go deeper on the revenue study. This is the revenue history of the IP relay service alone:



You can see it is growing extremely fast. Effective growth in Q3 2006 from Q2 was 157%, but that was partially due to this:

««In June 2006, the Federal Communications  Commission certified the Company
as an Internet Protocol Relay and Video Relay Service Provider. As a result, the
Company  became  eligible  to  be  compensated   directly  from  the  Interstate
Telecommunications  Relay Services Fund for  reimbursement of their  i711.com(R)
minutes and began  recognizing  the full revenue from these minutes along with a
related cost of revenue for the costs  associated  with these minutes,  which is
provided  by  Nordia.  Previously,  the  Company  relied on Nordia to obtain the
reimbursement  amounts on the Company's behalf.  This previous practice resulted in the Company  recording  only a portion of the total  revenue from the service provided as the Company was not the primary obligor.»

Not considering this, the growth was 59%, quarter on quarter. The IP relay market has been growing 75% a year since 2002. Let's assume GOAM's IP relay services revenues will grow 20% a quarter going forward until Q4 2007, and we get:



So, the 2007 estimate for GOAM's IP relay revenue is $27 M.

But this isn't the best part of the story. GOAM already is a certified Video Relay Service (VRS) provider, but it didn't launch its service on www.i711.com yet. It will do that in December.

The VRS market is almost 3 times larger than the IP relay service (IPRS) market (VRS was $76 M in Q3, IPRS was $28 M), and VRS is growing 155% a year, compared with 75% for IPRS.

Of course, this growth rate won't go on indefinitely, but I'm sure it will be very high at least until 2010. So, GOAM is entering what I estimate to be a $608 M market in 2007. If it grabs just 10% of market share (entirely possible, since it has 12.5% market share on the IPRS), it will have $60 M more in revenues to add to the $27 M estimate for the IPRS. That would be an $87 M revenue estimate for 2007, and GOAM's current market cap is just $13.6 M.

Considering the short term, GOAM went down 8.6% on Friday. I believe this was because some very short term oriented traders entered the stock on Tuesday when it traded 1.7 million shares (float is just 1.9 million) and since it didn't jump right after, they're feeling disappointed and exiting the stock.

I think it would be very unwise to let this opportunity go because of short term volatility. I'll keep on holding GOAM whatever happens to the share price.

[tokyopua]

At 5.67 now GOAM has formed a reversal hammer candlestick.  Any close at or above 5.67 then forms the reversal day that AussieTrader has been talking about for entry in STEPS.  Of course, I would like to see it close closer to where it opened around 5.95, that would be very bullish as in addition to a hammer we will have a harami pattern.

[David Randolph]

Thanks for your analysis tokyopua

That trade at $5.93 at the open, when there was a $0.50 spread, damaged today's candle, but I'm not worried at all about candlesticks on GOAM.

I simply love this stock. Imagine that they launched the Video Relay Service market today (the one I've talked about on my previous update) and didn't make a press release announcing it. They could easily pump the stock 20 or 30% in one day with a rosy press release, talking about the market's size and expectations, but no, they kept it quite.

This means they're not requesting investors money. Value will come up by itself.

Anyway, check out their website and the new service: http://www.i711.com/vrs/welcome.php

Now remember, if they get just 10% of the VRS market in 2007 (a $600 M market), that means $60 M in revenues for GOAM just from this service. Then remember the VRS costs $6.64 a minute, but the costumer doesn't pay it, the government does. And I don't think they will ever cut back on this subsidy, for political reasons. It's peanuts for the federal government, anyway.

But it's a big deal for a company like GOAM, with a market cap of $14 M.

I will hold GOAM for the long term.

[dmdray69]

What's up with the 363 share trade at 4.51 after hours?  Down a $1.15!  Someone trying to create a scare?  Ray