- SURG shares are massively undervalued relative to recent and forward dependable growth rates.
- The company’s model is hitting an inflection that will spur up to 5000% topline growth over coming quarters as an exponential compounding process takes hold.
- The market has failed to appreciate this dynamic because it doesn’t understand the model.. but it will understand the numbers when they hit.
- Investors need to get involved ahead of that because chasing a stock after concrete proof has a poor track record.
We believe Surge Holdings Inc. (OTCMKTS:SURG) can move to as high as $7/share in coming months because the company is on the threshold of a breakout into exponential topline growth and shares are currently hugely undervalued on any standard basis of evaluation.
SURG is a supply chain disruption play. The stock is valued at 0.5x forward sales, where other supply chain disruption plays are valued as much as 10x sales. The reason for the undervaluation is simply that the market doesn’t understand what this company has built, how it works, and how much money is about to come streaming into the door.
The Disruption is Underway
The Surge story is complicated. The main problem in trying to understand what’s going on here is the legacy business as a prepaid wireless provider. The reality of the situation is that SURG got its foot in the door as a dominant force in the independent c-store marketplace through its legacy business, and then put together a much bigger business built on those relationships.
Now it is becoming a major disruption play in the regional supply chain model driving all distribution of products and services at those community/corner stores across several major regions in the US market, with an eye toward expansion driving everything every step of the way.
The model here works a bit like the spread of a viral video game with lots of possible in-game purchases. Every new person you get hooked on your game is a horizontal expansion in your footprint, but it is also the creation of a new marketplace (that new person and their potential to make lots of in-game purchases) that can grow vertically. If you are good at driving growth in both of directions, you will end up with exponential growth, where you can go from making $50/week to making $10M/week in a very short time.
In this case, the video game is the supply chain platform for regional products and services to be sold at independent c-stores. The footprint is expanding extremely fast, and the company is very good at expanding on the vertical axis in each new store that joins the Surge Network.
To give you a sense of how well it’s going, Surge Holdings just qualified for Deloitte’s 2019 “Technology Fast 500™” list, which is a ranking of the 500 fastest growing technology, media, telecommunications, life sciences, and energy tech companies in North America.
And that ranking was before it closed a deal to add another 9,800 stores to its footprint late last year with its recently completed 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. That means the company will have nearly another ten thousand locations within its footprint of product and service marketing and a critical mass to attract additional products to the SurgePays marketplace portal.
The certain growth – according to the company’s communications – is in the form of ECS’s likely revenues from acquired business operations. Surge CEO, Brian Cox, suggested investors can expect $48.7 million in annualized projected revenues as a baseline expectation.
And, frankly, that might be a bit conservative. But even that would suggest something like 5000% topline growth over the past two years.
The next goal stated by the CEO is to build per store revenue to $1,000 per store through additional products ordered through the SurgePays portal by the c-stores. According to the company, many of these products are trending white-label products with the potential to register 30%-plus margins.
In the big picture, the real opportunity is defined by the degree to which the company can execute on both horizontal and vertical growth. In other words, the real payoff for investors is about both an expanding footprint of stores in the Surge Network and an expanding number of products and services at each location that are sourced through Surge’s supply chain and logistics platform.
If this compounding horizontal and vertical growth process takes hold, the company may have the potential for astonishing upside. And this isn’t a story to be written years from now. Those numbers are going to be hitting the books over coming months.