InterCloud Systems Inc (OTCMKTS:ICLD) Just Bounced, Here's What's Next

InterCloud Systems Inc (OTCMKTS:ICLD) is a company we’ve long been highlighting as a potential turnaround stock. In our last coverage of this one, we concluded with the following:

“This company may well dip near term as markets respond to what seems like a contraction. Any dip, however, could be a nice opportunity to pick up cheap shares.”

That was May 15, when Intercloud traded for a little over $0.02 a piece. During the subsequent three weeks, the company did indeed dip, bottoming out at $0.014 Thursday last week. As things stand, however, it’s up at $0.022, having topped out at $0.025 during yesterday’s session.This could be the turnaround we’ve been looking out for. At a $14 million market capitalization, the stock couldn’t get much cheaper. Markets are finally wising up to the undervaluation and loading up ahead of what should be a pretty substantial recovery.Here’s what underpins our thesis.This is a technology play that’s working primarily in the cloud networking space. We’ve detailed the operational side of the company on a number of occasions in the past, so we won’t go into them in too much detail here. What we will say is that the company’s core focus is on two types of cloud networking systems, one called Software Defined Networking (SDN) and another called Network Function Virtualization (NFV), and it derives the majority of its revenues from a combination of these two core focuses and what it calls ‘professional services’ which is basically consulting type stuff.Readers looking for a bit more detail should check out our historic coverage of the stock here.The thing with this company is that, over the last decade or so, it wound itself up in a net of toxic financings and convertible debt. Up until last year, management essentially ignored these things and the company’s share price was weighed down by the toxicity on the balance sheet. We’re talking about a company here that did $80 million in revenues last year, but that trades for a market capitalization of less than $15 million.Anyway, over the last twelve months, management (as spearheaded by CEO Mark Munro) has set about cleaning things up. Non-core assets are being sold off (with the most recent example of this being the $1.4 million sale of the company’s Training Division back in mid-May) and the cash is being used to clear up the balance sheet.As of the most recent 10K, senior debt totaled just $5.7 million. The assumption is that, through sales of non-core assets subsequent to this report, this number is lower now. Even if it’s not, it’s still down from $25.7 million this time last year. Sure, revenues are going to drop; the company is offloading revenue generating assets to clean up its balance sheet, after all. For us, however, this isn’t a problem. When we look at a stock we’d much rather see a clean balance sheet, cash flow positivity and modest revenues than high revenues measured against an unsustainable amount of toxic debt.What we’ve got here is a company that is currently valued as the latter, but which has transitioned to the former. Markets are yet to recognize this transition, and in this lag in response lies the opportunity.This isn’t the end of Munro and his team’s efforts – there’s still plenty left to do. Debt wasn’t the only problem, and with staffing concerns and what (even with the recent sales) remains a somewhat bloated operation, the next twelve months are going to be as important as the last twelve in terms of completing the turnaround. With that said, it’s well on its way, and we think it’s a great buy at current prices for anyone looking to pick up an exposure to the shift.We will be updating our subscribers as soon as we know more. For the latest updates on ICLD, sign up below!Disclosure: We have no position in ICLD and have not been compensated for this article.