Document Security Systems Inc

Document Security Systems Inc (AMEX: DSS) serves financial institutions and governments, provides brand protection technology, and safeguards them against costly counterfeiting and fraud. 

Investment Rationale – SPECULATIVE BUY at USD 1.64

• On 24 May 2021, DSS acquired a 24.9% stake of Sentinel Brokers Company Inc to expand the footprint of DSS Securities.
• The recent underwritten public offering can finance the Company’s growth plans and create accretive growth opportunities.
• Impact BioMedical (DSS’s subsidiary) received a US patent for its mosquito repellent booster. On 21 August 2020, DSS completed the acquisition of Impact BioMedical Inc to strengthen its scientific know-how.
• From a technical standpoint, the stock price is hovering near the lower standard deviation of the Bollinger Bands, while the 14-day RSI (18.15) is also in the oversold level.

Risk Assessments

• During Q1 FY21, two customers accounted for around 39% of Group revenue. Such overdependence can create a massive credit risk.
• The Covid-19 pandemic and the economic downturn might continue to impact the Company’s operations in the near term.
• The market capitalization is quite small, and the stock is prone to volatile movement. Therefore, the provided stop loss needs to be considered for the risk-averse investors.

Recent News

Public Offering: On 14 June 2021, DSS announced underwritten public offering of 29,000,000 shares. The net proceeds of the offering were around US$45.8 million. The Company intends to use this net proceeds to fund the growth of new business lines, pursue acquisition opportunities, fulfil working capital and general corporate needs. DSS has also granted a 45-day option to underwriters to purchase up to an additional 15% of common stock, which would increase the gross proceeds to around US$50 million. However, investor responded negatively to this underwritten public offering as the stock price plunged over 40% post announcement.

Financial Highlights for the quarter ended 31 March 2021 (as on 14 May 2021)

 (Source: Company Website)

• During Q1 FY21, revenue surged 17% year-on-year, primarily driven by a 21% increase in the sale of printed products.
• The operating expenses also increased significantly due to an increase in manufacturing cost, expenses associated with headcount increase, higher legal services pertinent to the Direct Marketing business segment.
• As of 31 March 2021, DSS had US$52.1 million in cash.

Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion

DSS has been putting efforts to pursue opportunities in digital security, underpinned by the recent acquisition of Sentinel Brokers Company Inc. Inevitably, the stock has proven to be a laggard last week post its underwritten common stock public offering. Notwithstanding, this fund can be used for business development and pursue additional acquisition opportunities. Moreover, the first quarter of FY21 shown revenue growth and the recent public offering can avoid the liquidity crunch might have faced post reporting a whopping net loss. The stock made a 52 week High and Low of USD 10.55 and USD 1.60, respectively. On the technical chart, the next important support level is at USD 1.34.

Based on revenue growth, recent acquisitions, liquidity boost, we have given a “SPECULATIVE BUY” stance on Document Security Systems Inc at the closing price of USD 1.64 (as on 17 June 2021).

Roblox Corp

Roblox Corp (NYSE: RBLX) provides online entertainment platforms and caters to nearly 42 million daily active users.

Investment Highlights – WATCH at USD 82.98

• Despite positive cash flow from operating activities, Roblox reported aggravated losses in Q1 FY21, and it might continue to report losses for the foreseeable future due to planned investments.
• As per the latest key metrics report released for May 2021, average bookings per active daily users declined year-on-year, which can impact its growth trajectory.
• The recent rapid growth might not indicate future growth considering the lockdown reopening plans in place, and bookings that inflated due to shelter-in-place policies might consolidate in the short term.
• From a technical standpoint, 20-day EMA (USD 87.70) sustaining above the current market price, while the MACD line has given a bearish momentum over the signal line.
• In terms of valuation multiples (EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow) are quite overvalued against the Technology industry’s median.

Key Risks

• The volatility in global economic conditions and subdued discretionary spending of users can impact Roblox’s revenue in the near term.
• It is exposed to liquidity risk since losses worsened in Q1 FY21, and there is a great likelihood of credit risk amid macroeconomic instabilities.

Recent News

Litigation: On 10 June 2021, Roblox announced that it is addressing a lawsuit filed by certain music publishers. Such litigation can cause a significant reputational loss to the Company.

Q1 FY21 Financial Highlights (for three months ended 31 March 2021, as of 13 May 2021)

 (Source: Company website)

• During Q1 FY21, revenue soared 140% year-on-year due to the increase in daily paying users as business was benefited from shelter-in-place orders.
• However, the cost of revenue also increased by 134% year-on-year due to higher processing and developer exchange fees.
• As of 31 March 2021, the Group reported US$1.6 billion in cash and cash equivalents.

Share Price Chart

 (Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative) 

Conclusion

As per the key metrics released on 15 June 2021 for May 2021, average bookings per daily active users were down 2%-3% year-on-year. However, revenue for May is likely to be higher due to higher bookings and increased daily active users. Notwithstanding, the Company has a history of operating losses, and its recent revenue growth can fluctuate with seasonal demand trends and ongoing economic turmoil. The stock made a 52-week High and Low of USD 103.87 and USD 60.50, respectively.

Based on the aggravated losses, rapid recent growth, lower booking per DAUs in May 2021, and unfavourable valuation conducted above, we have given a "WATCH" stance on Roblox Corp at the closing market price of USD 82.98 (as of 17 June 2021), while we look forward to reviewing how Company responds post lifting lockdown restrictions.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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