TOP IDEAS: With a market capitalization
approaching $100 million, RDM Corporation (TSX: RC) can no longer be ignored by
the majority of small cap funds.
Investorfile's share price accumulation
target of $1.35 for RDM Corporation was reached on November 22, 2012. For the
record, we do not revise share price targets for our Investorfile Top Ideas –
Small Cap Value Stocks. We have positioned our blog to be one of the first
providers of a pragmatic perspective of a small cap company stock's potential
worth, where there may be uncovered value that has been largely overlooked by
the investment community.
Over that past few years small cap
investors who have followed the Investorfile blog know that we have always had
a very bullish outlook for the stock of RDM Corporation (TSX: RC - $4.10). As a
matter of fact, in our last three blog posts about RDM, we questioned why the
broader small cap market had largely ignored this stock that continued to offer
a combination of strong value and growth. Case in point: September 2013 – stock
up 88% (See: Once a turnaround; now a growth
story: More investors should tune into RDM Corporation);
February 2014 – stock up 161% (See: For growth investors: What’s not
to like about RDM Corporation); February 2015 – stock up 247%
(See: Again we say: What’s not to like
about RDM Corporation).
In recent years the apathy for RDM’s stock
prospects also extended to small cap fund managers who made regular appearances
on business TV investment call-in shows. When asked about RDM, one fund manager
said, "It was a boring stock going nowhere.” Another fund manager’s comment
was, "The stock can get out of its own way” (what ever that means?). To be
fair, AGF Small Cap fund manager Peter Imhof had RDM as a top pick on the
BNN-TV show Market Call (See: video clip).
Are the blinders for RDM’s stock about to
come off? We think so.
RDM Corporation is a provider of Remote
Deposit Capture (RDC) technology: specialized software and hardware products
for electronic payment processing of digital images of cheques. RDM payment
solutions are utilized by four of the top 10 financial institutions in the United States.
The Company processes over $600 billion in annual payments and serves 31% of
the top 100 Fortune 500 companies including brokerage firms, big box retailers,
healthcare and insurance providers, and government entities in the USA.
Since the Investorfile blog named RDM
Corporation to its list of Investorfile’s Top Ideas Small Cap Value Stocks at
$0.88 (See: RDM Corporation: Cash-rich small cap turnaround, offers value and
opportunity) the stock’s returns including dividends have topped 400%.
With investments returns of over 400% to
date, what would make the Investorfile blog still believe that there are higher
returns still to come? Here are four reasons:
- RDM’s market capitalization is approaching $100 million, a milestone
that will attract a much wider audience of small cap funds to invest in this
Company. This will push the stock to trade at a higher earnings multiple.
- Based on its trailing 12-month earnings per share (EPS - US$0.18),
RDM’s current stock valuation is not expensive. We take into consideration that
the Company reports its earnings in US dollars and the stock trades in Canadian
currency and almost one-third of RDM’s market capitalization is derived from
its cash holdings.
- Recent results and outlook suggest that RDM is in a financial position
to increase its dividend rate.
- The Company is debt-free and holds about US $25 million (C$31 million)
in cash. RDM is uniquely positioned for a stock catalyst event such as a major
acquisition or, conversely, a takeover offer.
Given the aforementioned reasons, we look
forward to writing our next blog post on RDM Corporation. Why? If history
repeats itself (and it has over the last three years), this stock will be
trading higher, once again.
RDM has approximately 22 million shares
RDM Corporation website: www.rdmcorp.com.
Author's Ownership Position TSX: RC - Long
This article is for informational purposes only. This article is based on the
author's independent analysis and judgment and does not guarantee the
information's accuracy or completeness. The information contained in this
article is subject to change without notice, and the author assumes no
responsibility to update the information contained in this article. The
information contained within this article should not be construed as offering
of investment advice. Those seeking direct investment advice, should consult a
qualified, registered, investment professional. This is not a direct or implied
solicitation to buy or sell securities. Readers are advised to conduct their
own due diligence prior to considering buying or selling any stock.
Investorfile.com is not engaged in an investor relations agreement with RDM
Corporation nor has it received any compensation from RDM Corporation for the
preparation or distribution of this article.
The author of this article has acquired and may trade shares of RDM Corporation
through open market transactions and for investment purposes only.