Nxt-ID (NXTD $1.18)
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Transitioning into 2019
Shares in NXTD were down sharply in Q4 of 2018, along with most stocks in the market. However, they were also hurt by the delay of their proposed spinoff of "PartX" to existing shareholders. One thing we got in the delay was a clear market signal about how much people feel that PartX would be worth as a separate company. When combined with the existing Logic Mark business it suggests the shares continue to trade at a discount.
As shown in our FPV model our current estimate for where shares of NXTD should trade is $3.69 versus the current $1.20. The market suggested a value for PartX at $15M based on the price action of NXTD trading with and without the spinoff last year. And since that time PartX has announced a new customer, Swatch, continued to expand their relationship with Garmin and will be shipping the Flip in Q1.
It was also announced that Discover is now live on the FitPay Platform. That brings the FitPay ecosystem to 15 devices from two leading brands, four large-scale payment networks (Visa, MasterCard, Discover and Maestro), and more than 275 banks/payment cards in 35 countries.
Let's do some simple back-of-the-envelope valuation on NXTD. We'll give PartX a bump from the last market-based estimate of $15M and say they will be at least $20M when they spin off in 2019. That will leave NXTD with the core Logic Mark (LM) business which has been a steady growth, high-margin business since they acquired it.
Our point estimate for LM revenues is $22M. This business generates 70%+ gross margins and is solidly profitable. While initial operating margins in 2019 might be closer to 10%, but this is a 20%+ operating margin business.
What value do we put on a $22M business growing 10-15% YoY with 10-20% operating margins? A solid starting point is 15x on 15% operating margins = $22M x 15% x 15 or $50M.
And that's not factoring in any incremental success from new LM initiatives – especially the combination of their new Notifi911 consumer offering with expanded distribution at retailers like Best Buy. There are expanding opportunities for wearable solutions like Notifi911 in healthcare, employee safety and making emergency response more effective and efficient.
That provides what we'd call a "base" valuation case of at least $70M and that's not factoring in the potential for real growth in 2020. That would translate into a current share price of $2.20. If we include simple trendline growth for the next year we get to $85-90M for the combined company or about $3.00/share.
The stock action late in 2018 and into 2019 puts a market-driven valuation on PartX which should be even higher in early 2019 based on the additional progress they have announced.
Logic Mark is a positive "known quantity" that we can value on the fundamentals. Current stock levels should be between $2.20 and $3.00/share in the next six to 12 months.
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