Hey Bear,
Thanks for the response. Yes, I actually remember when you joined us on the boards. I think you were one of the first brave people aside from Saul to start posting your monthly portfolio holdings/performance. I have always enjoyed reading your posts and seeing what others may be buying/selling.
1. The market cap is $100 million (a PS around 5). Companies this tiny are troublesome for a number of reasons:
a) they’re harder to follow, because there is less information available
b) they’re growing off a very small base, so it’s hard to know how that will continue
c) their stocks are incredibly volatile – see #2 below.
I totally agree with you and definitely understand why people may want to avoid smaller companies. I tend to not shy away from smaller companies as long as they are not too small for that exact reason. Most are scared of them and that presents potential opportunity. You just have to know the risks, know how to read financials, be extra careful and size the position accordingly if a position is taken at all. I wouldn’t fault anyone for just saying it is just too small for me. That is perfectly reasonable and logical.
When I first found BOFI and invested it was in the range of $10 and $14 per share pre split. It had a market cap at that time of $125 millionish so it was pretty tiny. It was also trading at 1x BV which gave me a certain level of comfort. I still remember those first calls when no one was following the stock and they were taking questions by small mom/pop style investors. Greg was talking about how he has the majority of his net worth in the company stock and the value would eventually be recognized as long as they kept performing.
I am currently following a few others which are tiny though have compelling reasons to believe the valuation is solid or growth will accelerate. I guess my point is I wouldn’t fault anyone for avoiding these companies. I complete understand though there are opportunities for the few that want to look for them. I guess I sometimes forget many people are scared of them because I follow them so regularly. In hind sight this stock was probably a poor choice to introduce to the board. 
We’ve even discussed some tiny companies on this board, namely Patriot National and Mitek. I ended up selling both because they were like black boxes to me.
I remember these. I didn’t invest into Patriot National because something within the financials scared me to death. I actually still follow Mitek but never took a position because the stock based compensation is ridiculous which in my opinion is a perfect sign of a management team not afraid to screw over shareholders.
2. The share price is down to ~$4 from $10 right after the IPO. That’s a huge move I’d like to understand. Did you address this somewhere? I might have missed it.
The share moves can be pretty crazy especially with these small companies. I started following ShiftPixy even before it went public because I thought the concept sounded intriguing. At that time I found the valuation quite absurd especially in the run up to $11 range. It came down from that level after the initial hype subsided. There was also a Seeking Alpha article in September that was pretty scary. It has been a favorite among traders ever since. I was very patient with this one and eventually added shares near the lows under $3 a share.
3. I’ve never heard of the business in real life, or even mentioned anywhere. Did you find this company through the Zack’s tip? Zack’s is a company I’m familiar with, but I don’t know them nearly as well as the Fool. How well are their picks vetted?
The company is still extremely small and I am not surprised you never heard of it. They currently get most of their business in the Las Angeles market which is their initial trial market. They just expanded to New York last fall and more recently Austin, TX and Orlando, FL. I initially found it because I regularly follow IPO’s for interesting companies worth following. I usually ignore overhyped IPO’s and look for hidden gems. I stumbled across Zack’s article during my research. I didn’t realize it was a paid piece until someone told me here.
4. I don’t understand the business. This is a big one for me. I don’t really get their product, and the restaurant and hospitality industries they sell to aren’t exactly exciting.
I totally understand and that is probably a good indicator to stay clear of this stock. Never invest into anything you don’t feel you understand or are unwilling to learn.
5. Are their customers mostly small businesses? Can’t imagine they’d have huge contracts, but maybe I’m wrong. Who are their customers? Are the same cohorts buying more each year?
They mentioned a bit about this in their year end conference call around minute 13:45. They are doing trials with Jimmy Johns and Carl’s JR. They are focused on bringing on financially stable franchise restaurants initially. I don’t remember much more and may dive into the SEC documents to refresh my memory and see what I can find.
6. You say I get very good returns for myself with near zero overlap among stocks on this board the last couple years. ShiftPixy is probably the riskiest company I follow I’m curious, why did you bring the riskiest company you follow to this board? I’d be interested in other, less risky companies you’ve done well with.
Picking this company to bring to the boards in hindsight was probably a mistake. I initially picked it because I find the concept intriguing. I created this account primarily because I wanted to start tracking my performance within CAPS for fun. I do a fairly good job of updating CAPS whenever I make a position change. You can see much of my record since 2016 from CAPS if your interested. A couple successes I found exciting to follow in 2017 were buying Tabula Rasa somewhere in the $13ish range and Teladoc at around $13 as well. I sold them both somewhere in the high 30’s on a valuation basis. Another stock I find interesting is a turn around called Cambium Learning. I had to submit a request to have this one added to CAPS which got me a whole lecture about how the stock was too small and the new guidelines regarding stock inclusion into the CAPS system. It was eventually added. I was buying shares under $5. The revenues of this company were declining. Though the appeal was that if you dug deep you found a very appealing SAAS like high margin digital product was growing 15% to 20% year over year. The legacy low margin print revenue was in decline. The free cashflows had grown to a point where they were yielding far better then 10% a year on the market cap at the time. They renegotiated their debt the prior year to allow this and have been putting all cashflows to paying down the debt. In the last call they announced respectable growth among the digital products which now account for over 80% of revenues. They also projected they would be debt free at the end of 2018. This leaves a company growing high margin digital revenue at 15ish% and generating tons of cashflow. They will be completely debt free allowing them to reinvest the cashflows back into growth or return it to shareholders. This company makes learning software for the K-12 education market. They help students learn better which is a cause I like to support as well. Maybe I should have introduced that company first. :-/
I have almost zero overlap with most stocks talked about here just because they have been too pricey for me. I have a hard time buying a stock priced much higher then 10x sales or if it has high stock based compensation. I am running close to a 50% cash position because opportunities are hard to come by these days and I am not overly confident with the overall economy at the moment.
Best,
Maraj