Market sentiments strengthened on ALUF Holdings Inc (OTCMKTS:AHIX) as a result of the recent release of its most quarterly reports for the year 2017 and a letter from management. While the company exhibited to the market participants stable balance sheet as well as a decent amount of revenues, yet the most interesting was the letter. It reads that AHIX is in the final stages of due diligence and a $15.5 MM capital raise to fund the total acquisition of two targeted biometrics companies. In our opinion, a transaction of this type could originate an interesting rebound opportunity for the stock. In this article, we will provide further details.
Taking into account that AHIX was a dormant ticker for a long time, we believe that the reaction of the market was larger than that of usual in such cases. More than 1.5 billion shares changed hands, and market participants tripled their money in a short period of time. Have a look at the recent price action in the following stock chart:
Aluf Holdings, Inc. was founded in 1981 and is headquartered in Hollywood, Florida. The company is focused on the development and sale of proprietary software. The business strategy is to build a large portfolio of companies with more diverse enterprise software solutions through strategic acquisitions and managed growth, as it acquires profitable businesses with strong growth potential and a solid business plan.
While we have already seen that AHIX is about to acquire two companies involved in the biometrics sector, the company is also interested in other promising industries:
“Especially in areas of biometrics and cyber security, cloud-based software services (SaaS), medical applications, energy production, IoE (Internet of Everything) services, and global law enforcement and military-based offensive and defensive applications. in the software and technology industries.”Source
What’s making the market react?
Let’s first of all talk about the letter sent on March 5, 2018. Despite we believe that the whole market should have a look at it, we will cover the most remarkable details.
The letter commences promising more transparency to shareholders, which shareholders should have appreciated. Let’s tell it this way; with a higher level of communication from management, more investors will be interested in this name, and the equity financing will be cheaper. Additionally, the company noted that it is preparing for near-term launches of several exciting business initiatives. More acquisitions can be expected from now on, which we appreciate. Read the following words, they are encouraging for shareholders:
“Without compromise, all growth strategies and viable acquisitions going forward will be embraced with the sole intention of strengthening AHIX’s bottom line and maximizing Shareholder value.” Source
Is this boilerplate text? While it could be boilerplate text, the company seems to be really taking actions; it is shown in the following text found in the same letter:
“To this end, I am pleased to inform you AHIX is in the final stages of due diligence and a $15.5 MM capital raise to fund the total acquisition of two (2) targeted biometrics companies, rapid integration of operations, and underwrite a well-planned service expansion while maintaining superior product quality and customer support.” Source
Given the current market value of AHIX, $15.5 million in new financing is a lot of money for the company. Additionally, in our opinion, if the new money can make the company grow, the shareholders will enjoy more stock returns.
Can we expect growth?
It is never sure, but AHIX has opted to make investments in the biometric technology sector, which is expected to provide a lot of new solutions in areas like security, education, defense, immigration, and the “Internet of Things” sector. The growth is expected to be large, and industry experts predict that the revenues will exceed $23 billion by 2020.
There is more beneficial information.
The company seems to be working in the right direction after it released its due financial reports. As a result, the company is now compliant with the stock market regulations and is well positioned to commence mergers with other players.
The new Financial Accounts
While AHIX has already generated revenues of $0.03 million in the Q3 2017, yet we believe that the most important is the information contained in the balance sheet. With $2.9 million in total assets and only 2.2 million in total liabilities, the company seems to be in a stable position to sustain future growth. Additionally, we want to draw the attention of the market to a large amount of retained earnings accumulated; ($20,807) million. These are net operating losses that will be quite interesting, as the company will pay fewer taxes in the near future:
“An NOL may be considered a valuable asset because it can lower a company’s amount of taxable income. For this reason, the Internal Revenue Service (IRS) has a restriction on using an acquired company simply for its NOL’s tax benefits.” Investopedia
Currently trading with a market cap of $2 million, AHIX is showing an interesting rebound play. With 3,471,202,631 shares outstanding and a float of 2,747,616,697, we don’t see a prior volatility risk in this name. It is another beneficial feature of AHIX.
To sum up, stay tuned to this company since the story has only commenced. The year 2018 should be, in our opinion, the right moment for AHIX. Be ready.
Disclosure: We have no position in ALUF and have not been compensated for this article.
Image courtesy of Toshiyuki IMAI via Flickr.