The past week has been a trying time for Root9B Holdings Inc (NASDAQ:RTNB). Events over this period have seen its share price both rise and plummet in quick succession with the latter having the largest weighting.
However, this piece seeks to debunk the mystery behind this drop-in price while elaborating why it would be in an investor’s interest to currently buy the stock.
The above stated downturn taken by the stock can be seen below:
Over the next course of this piece, we will take a look at the profit-making (upside) opportunities associated with purchase of the share for both short and long-term gains while also assessing the company’s strategy and the industry it is engaging in.
However, before this, let us first briefly review the company and its operations for the sake of first time readers.
Root9B: An Overview
RTNB was founded in 2000 as Continuum Group Inc in Nevada. Back then, the company was a player in the consulting industry, majoring mainly in IT and staffing. Afterwards, it began publicly trading in November 2004 and later changed names to Root9B Technologies and later to Root9B Holdings, Inc in 2014 and 2015 respectively.
It was not until 2015 that the company morphed from its previous operations to adopt a pure cybersecurity and regulatory risk industry alignment strategy whereby they focused mainly on the cybersecurity segment of the industry.It has since then had one reverse stock split, 1 for 15 shares, before it began trading on the NASDAQ.
The company which has over 90 employees prides itself in being the leading provider of cybersecurity and regulatory risk management solutions. This is pegged to the team of qualified personnel it hires in addition to the ground-breaking idea the company has invested in: HUNT approach to cyber security.
The hunt approach is a method formulated by personnel in the company who were formerly working in the defense industry. Their idea involves bringing back the human defenders back to the core of cybersecurity defense by creation of a platform where the human defender will “hunt” the perpetrator, hence the name.
This system has caused the company to the tanked first in the annual Cybersecurity Ventures top 500 cybersecurity companies, beating other major players in its industry. In an interview with the company’s Chief Executive, he is quoted saying:
“Hunt is a defensive strategy that incorporates an active cyber defender (human) to proactively maneuver through the organization’s proprietary network in order to identify indicators of an attack and preemptively counter these threats… Essentially, the approach pits an active thinking defender against an active thinking attacker. You absolutely need the automation skills, but it cannot be the final layer”
This strategy has earned RTNB the respect of a lot of business from Fortune 500 companies and the Department of Defense, securing the company’s stand in the security and cyber defense field. The entity has used this opportunity to align itself with major customers (named above) and build a strong brand that will ensure it remains a key player in the over $75 billion industry in the long term.
Can they finance this?
Despite the above mentioned, the company has made significant losses in the past with over $30 million in losses by the end of 2016. These were mainly associated with the high cost of sales which stood at about 96% of the revenues over the same period. Moreover, RTNB is heavily in debt with a debt burden of about $15 million as at December 2016. This high level of debt drove them further down the loss road and had significant ramifications on its share price and making the business operations seem unsustainable. Cash flows from operations were also negative over the period to 2016.
These high debt levels led the entity as on September 29, 2017, to be auctioned by Tracker Capital Management through its agents Centriole Reinsurance Corporation Ltd. Tracker Capital bought out the entity for about $12 million therefore RTNB had no operating assets as at the end of that day.
In a shocking market move, however, the stock’s share price rose by over 250% on the same day. Market players seemed to take positively the change in management in RTNB given the strong financial muscle and industry experience they bring to the table. Before his resignation, the company CEO is quoted saying:
“Root9B is delighted to announce our new ownership, which provides us the capital required to eliminate debt from our balance sheet and fund our strategic growth initiatives. Our team remains committed to bringing experience, excellent service, and next-generation cyber solutions to our clients,”
With the elimination of debt, the entity can now focus on ensuring that its personnel deliver on the output necessary to keep it afloat throughout the current and in future periods. The firm with a $6.47 million market capitalization can now grow further with the main focus being obtaining revenues and profit making to further boost its performance relative to competition.
Finally, they should leverage on their current partners such as Chertoff Group (who they partnered with in 2015) to restart the wheels and take them back to their former glory. Given their strong brand, the RTNB will benefit from a larger market share and ability to generate revenues from contracts with large corporations it has previously worked with. As such, in the near and distant future, they are expected to be a force to reckon with.
RTNB is a story of the compelling strides made in the cybersecurity industry and the accomplishments of its players so far. It represents a new generation and contrarian view to the current industry norms which serves to better ensure security of institutions. Despite a few shortcomings, an investment in RTNB will prove beneficial to the investor.
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Image courtesy of Defence Images via Flickr
Disclosure: We have no position in RTNB and have not been compensated for this article.