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Why Gaia (GAIA) Stock is a Compelling Investment Case

Alex Smith

Artko Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -11.4% for the quarter, underperforming its benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Artko Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Artko Capital highlighted a few stocks and Gaia Inc (NASDAQ:GAIA) is one of them. Gaia Inc (NASDAQ:GAIA) operates a global digital video streaming subscription service and online community. Year-to-date, Gaia Inc (NASDAQ:GAIA) stock gained 54.3% and on August 6th it had a closing price of $11.96. Here is what Artko Capital said:

"Gaia (GAIA) – Our investment in GAIA continues to remain one of our largest holdings at close to 14% and for good reason. While the stock has mostly stayed flat this year (though with a major decline in March and a subsequent rebound) the business continues to deliver on our thesis on all cylinders. In late 2018 the company pivoted from being a “high growth regardless of costs” story, which ironically are the most sought after stocks in the market today, to one of slower revenue growth, from 60% to 20% a year, but one that was focused on reaching Free Cash Flow generation by June 30th, 2020 without needing to access the capital markets. Since 3rd quarter 2018, or a little over a year and a half to end of June, 2020, the company has grown its subscribers 43% to 664,000 and quarterly revenues to over 50%, at $16.2mm, on the back of strategic price increases, while cutting the Operating Cash Flow loss $8.4mm a quarter to $1.9mm in profit at the end of June. In middle of June the company updated the market on reaching its 650,000th subscriber and achieving sustainable Free Cash Flow profitability and in August of 2020 the company reported a 664,000 subscriber number as the churn continued to improve.

With Covid-19 changing both, the ways the public exercises and increasing the volume of entertainment consumption, we believe Gaia is in an excellent position to capitalize on these trends with a significant customer base and brand name, as well as substantially lower customer acquisition costs (CACs). CACs have benefited from having the high churn rate vintages from 2017 and 2018 no longer being part of the net CAC cost base as well as lower rates from the typical customer acquisition channels as the economic slowdown takes its toll on the advertising rates. We believe with the quarterly CACs and corporate expense costs staying relatively flat for the last year, while the company continues to both, grow its subscriber base and raise prices on its formerly grandfathered accounts we should begin to see the power of the operating leverage inherent in the business model as a significant part of the new revenues should fall to the bottom line as Free Cash Flow. Our expectation that by 2021 we should see EBITDA/Free Cash Flow at above $20mm and $14mm with the market beginning to appreciate the earning power of the $150mm market capitalization company by the end of 2020, re-rating it to high double digit EBITDA and high single digit revenue multiples of its streaming peers to a stock price multiples higher than it is today."

Copyright: gladkov / 123RF Stock Photo

In Q1 2020, the number of bullish hedge fund positions on Gaia Inc (NASDAQ:GAIA)  stock increased by about 22% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Gaia's growth potential. Our calculations showed that Gaia Inc (NASDAQ:GAIA)  isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:


Disclosure: None. This article is originally published at Insider Monkey.