Surge Holdings Inc. (OTCQB:SURG) is a small-cap growth story that has been badly missed by the market for a few reasons, all of which suggest that justice will yet be done for this name as the story develops from here, with a primary catalyst ahead in the form of a possible uplisting event onto a major US listed exchange (Nasdaq or NYSE).
As we parse out the story here, this is a stock that has failed to perform in a manner that takes into account the huge topline growth just logged and still confidently in site on an annualized basis due to both the strong execution by management in recent months and the company’s impactful push on the M&A side in 2H 2019.
The ECS Acquisition
Let’s start with the latter point. Surge Holdings recently completed the acquisition of ECS, a leading provider of prepaid wireless load and top-ups, check cashing, and wireless SIM activation to convenience stores and bodegas nationwide.
According to Surge communications, this asset acquisition will result in an additional 9,800 stores pulled into the fold of Surge’s network, processing approximately 20,000 transactions each day through 160 independent sales organizations and representatives already servicing these stores.
Given that this is a regional c-store supply chain disruption story, the market has totally failed to appreciate the implications of this enormous event.
Adding nearly 10,000 stores to the company’s network is a goldmine because the model here is one that expands both horizontally and vertically – horizontally by widening its footprint of stores on the network, and vertically by adding products and services to the transaction base for each store.
If management executes on this acquisition, it’s going to mean a whole lot more than just $49 million in additional revenues over the next 12 months.
This compounding dynamic is where the exponential revenue growth potential really starts to emerge.
The Big Picture Numbers
You might be thinking: “Well, is this company really turning a corner and actually putting up the numbers?”
The company also recently reported more stellar growth data. Consider that this is a company that did $1,429,872 in sales for 2017. Q3 2019 showed Quarterly Revs of $4.9 million, which is $19.6 million annualized. When we add ECS post-acquisition forward expectations into that mix, we are looking at a company now trading on a forward annualized top-line of $68 million, which is 4,600% growth in two years from a base that was already well into 7 figures!
Another key catalyst in the mix right now was Deloitte’s move to recognize SURG as one of the fastest growing tech/innovation companies in North America in 2019. Given what appears to lie ahead, we wouldn’t be surprised to see Surge on that list as a mainstay for years to come.
We would also encourage readers to listen to the CEO in his recent SmallCapVoice interview, which can be found here.
Where To Next?
With any highly speculative play, you know you are dealing with a stock that isn’t going to get the benefit of the doubt,… until it does. And that latter part usually comes in response to undeniable evidence that the secret sauce is for real and the model is working.
In this case, SURG is rounding that corner and we are ready to say, “the verdict is in!” Waiting much longer for proof points for this stock is tempting a cliché horse-has-left-the-barn experience from an investing or trading standpoint.
Once everyone knows this is a big deal, the big opportunity will be a history lesson on the virtues of speculative due diligence and second-derivative thinking.