Mobile Smartphone Tech Stock Alert: "Star8 Corp (STRH) - An Undervalued Micro Cap Gem"
Category: Investment, Technology
News about Phenom Investors
November 21, 2012 (Investorideas.com newswire) Phenom Investors www.phenominvestors.com Reports on Star8 Corp (STRH)-We think we’ve found an undiscovered gem trading under 5 cents with incredible upside, exploding revenues, and an undervalued market capitalization. Star8 Corp ( OTC:STRH ) is trading like it wants to move higher as some volume has been coming into the stock the past week and they released their financials for the 3 rd quarter showing growth accelerating. Star plays in the emerging markets and has carved out a very interesting niche in the mobile smartphone space (we’ll post details of their business below). News out on their numbers and future releases can be found on their website here: http://www.star8corp.com/?cat=latestnews
In summary, the company has just moved from development to revenue producing in the 3rd Quarter and if off to an impressive start. We like investing in companies at this stage because you tend to see the more aggressive small companies hockey stick their growth in the first two years. As you will see they actually reported $1MM in revenues in Q2 from basically zero the year before. Just announced Q3 revenues were $1.4MM and the company is looking for 2012 revenues of close to $5MM, which indicates a $2.5MM revenue Q4. That's pretty impressive growth but he also said they are projecting nearly $30MM in 2013 sales with about 10% of that falling to the bottom line. Even if they do half of that, there is room to support a substantially higher share price in the future. As you'll see from their business (read below for description), it is pretty low margin, but with top line growth like that, this is a no brainer with a $4MM market cap!
As you'll see from the chart below, the stock has risen to 10 cents or so 7 times in the past 18 months very easily, and this was when they had no revenues (it was a 50 cent stock less than 2 years ago). Now, revenues are starting to explode so 10 cents should be very doable by the end of the year and if the stock breaks through 10 cents, we think 15-25 cents will be the next trading range going into 2013 when business goes through the roof. So you fully understand the strategy being executed upon in key emerging markets, read the outline below:
The Company is entering an extremely competitive market but has found an underserved portion of the market. The upper echelon of full featured mobile devices includes Samsung and iPhone, among others. These phones and the services associated with them become prohibitively expensive in predominantly prepaid markets. This is because these phones have no subsidies to the end user. For example, in North America, a top of line Samsung Galaxy S3 can be acquired by the end user for no more than $299 with a two or three year contract. The actual difference between the real retail cost of $699 and up is incorporated into the three-year commitment by the end user. In a prepaid market, there is no end user commitment and therefore no subsidy, requiring the end user to pay the full $699 for the phone. Star8's offering, which provides virtually the same features as these elite devices, will retail for under $150.
The forecast for mobile device shipments in 2013 will be over 2 Billion handsets. In emerging markets where mobile operators provide a predominantly prepaid service, end users replace their phones every six months on average. This is because the end user is not bound to a contract where the phone is subsidized and locked to that network. The low cost advantage that Star8 has, will allow the Company to initially carve out a very small market share in its targeted regions of Africa and South East Asia. To put this in perspective, the South East Asian mobile phone market has over 500 million users, not including China. The African market is very similar. For Star8 to acquire a market share of 0.1% (one tenth of 1%) in the first year of full marketing operations is a reasonable expectation and would translate into 1,000,000 units sold. At this level, Star8 will have entrenched itself as a leading provider of full featured mobile phones and positioned itself for further growth and increased market share.
Star8 markets its products to mobile operators and distribution channels in emerging markets. These markets are defined in general terms as South East Asia, Africa, Latin America and Eastern Europe. The mobile market in these regions is predominantly prepaid. This means mobile subscribers must pay in advance for any services they use, including, but not limited to voice calls, text messages and data usage. In this model, mobile operators offer mobile phones at full price as there is no long term contract associated with the subscriber to subsidize the price of the phone over a two or three year period as is the case in North America.
These markets alone are comprised of over 1 billion mobile subscribers; and this does NOT include China, which has approximately 1 billion subscribers itself.
For example, in South America, there are approximately 400 million mobile subscribers and 200 million phones are shipped to that region every year. For Star8, acquiring an extremely small portion of this market can translate into substantial revenue and earnings.
There are multiple benefits for both the mobile operator and the subscriber with this model. The subscriber has complete control over how much they spend at any given time and the operator virtually eliminates bad debt.
Also, because the phones are unsubsidized, they are not locked to the mobile operator as is done in North America. This creates tremendous churn of phones in these regions. Because subscribers are not committed to long-term contracts, they are also not committed to their phone. Subscribers in these markets acquire a new phone every six months on average.
Do you see why we like this company?? We feel our algorithm picked up very early on some accumulation which was validated by the revenue growth just announced for the 3rd quarter. Our guess is that more phones and tablet products will be announced in the near future, as well as, key distribution agreements in new markets. It would only make sense that these developments would occur now that their strategy is gaining traction. For traders, we feel the stock can be bought up to 6 cents per share and for those investors with a longer term horizon, up to 10 cents is prudent. If they meet their forecast for 2013 with approximately $3MM in earnings, a 10x PE multiple is realistic, which would take shares to the 30-40 cent range.
Phenom Investors www.phenominvestors.com
Published at Investorideas.com newswire
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