On January 28th, 2021, Armada released their Q2 financials. While earnings and cash flow were positive, the numbers definitely weren’t as strong as Q1. That being said, while Q2 results didn’t replicate Q1, Armada is still a micro-cap with potential. We still hold a fairly large position in Armada, and with that in mind, we walk through their Q2 number using our usual bullish, neutral, and bearish format.

The chart is still showing strength. On an overall basis, Armada shares continue to exhibit strength. Volume in and around the Q2 release was particularly strong, with Armada trading approximately 785,000 shares from January 28th to the end of February 1st, 2021. To put this into context, for the entire 2020 fiscal year (June 01 2019 – May 31 2020), Armada traded approximately 2.5 MM shares. In essence, about 30% of the total volume of fiscal 2020 changed hands in the three days around the Q2 release. While most of the market is still relatively unaware of Armada, someone was interested, and voted with their wallet(s) leading up to the Q2 release.

The balance sheet remains solid. The beauty of small companies is that the financial statements usually aren’t trying to throw any curveballs, which is true for Armada. The balance sheet has hardly changed when comparing Q2 vs Q1. Cash is up on a quarterly basis, and current assets are down by an immaterial amount. When adjusted for intangibles, total assets are up by ~ $140K when compared to Q1, and on the liability side, total liabilities are up on a quarterly basis by ~ $126K, all of which is a function of changes in lease liabilities. Other than that, the balance sheet has hardly moved, and on a YoY basis, there are no concerns. The company still has a very strong current ratio, and total liabilities are small when one considers they could almost be fully paid out by cash on hand.

Revenues and earnings are flat. While we were hoping for a repeat of Q1, it was not to be. Revenues and earnings were down on a quarterly basis, but both EBITDA and net earnings are improved when viewed on a YoY basis. It should be noted that these numbers are still reflective of a Canadian economy that is still in the midst of dealing with COVID induced lockdowns, so one might argue that these numbers are surprisingly strong. In any case, while the income statement doesn’t present any red flags, it is arguably neutral at this point. Given the very strong Q1 showing, Armada still has the remainder of the year left, and if even one of those quarters comes close to a repeat of Q1, it will significantly impact the full year results of Armada.

Cash flow is still solid, although not as strong as Q1. For whatever reason, it seems that the Armada cash flow statement requires a bit more detective work, as the value labelled as “Cash provided (used in) by operating activities” is actually the total change in cash flows due to working capital changes. The correct (after working capital changes) cash flow is shown below, and for both the 3 month and 6 month period, cash flow is solid at $0.01/share for 3 months and $0.02/share for 6 months. This suggests that full year cash flow could be somewhere between $0.02/share (if the remainder of the year is horrible) and $0.04/share, if Armada can produce similar 6 month results. Either way, this works out to a current cash flow yield of somewhere between 13% and 27%, using the current price of $0.15. Given that the Armada business model isn’t particularly capital intensive, this means the cash balance just keeps growing, which is fine by us.

Insiders continue to hold, and some have purchased. Insider holdings are essentially unchanged since our December 2020 post, with the three largest insiders (Matthews, Timoteo, and Oszlak) holding approximately 11.7 MM shares in aggregate. Additionally, as of early February, one insider (Rob Montemarano) made a relatively small purchase of ~ 30,000 shares at $0.135.

While insider holdings don’t occupy the same amount of “page space” in our discussions, they are key, in that significant insider ownership means that management has skin in the game. In turn, if they have skin in the game, they are less likely to engage in poor decision making – which is an excellent segue to perhaps the most pressing question: what is the deal with the dividend ?

Armada has instituted an annual dividend. The skeptics who are reading this are saying “that heading should be amber, or perhaps even red“, and the optimists are saying “that heading is just right”. As with all things, it’s always good to have an independent opinion. We think that the dividend policy is a positive development for Armada, and will walk through the reasons why.

First off, let’s unpack the language of the press release as it relates to the dividend:

An investor reading this hears two messages, specifically that “…Armada plans on upholding this annual dividend…”, and then “…..investors are cautioned that the declaration and payment of dividends is at the discretion of the board of directors of the company and any future declaration of dividends will depend on the company’s financial results…”

These two messages seem to run counter to one another, but the truth is that this language isn’t contradicting itself. The first part is very positive, as the explicit mention of “upholding this annual dividend” is there with purpose. If the intent was to pay a one time special dividend, the company would have stated that – very clearly. Additionally, the last part of the message (which seems to cast doubt) also sounds more ominous than it is. This language is typical, and the financial world is full of it. If you need confirmation thereof, just look at any quarterly press release by a dividend stalwart such as BCE. On any quarterly press release, a company such as BCE will likely have a full page of “Material risks”, the point of which is to communicate that (a) the future is uncertain, and (b) if the future is uncertain, dividends might also be uncertain. This is not to say that BCE is a “bad” company, but simply to demonstrate that statements such as this are everywhere. If an investor were to take each one of these as a statement of “material risk”, nobody would invest – ever.

The second thing about the dividend announcement is the fact that Armada has both been creating cash flow and is sitting on cash. With $669K in cash, the company could pay the dividend ($176K), pay off all current liabilities ($477K) and still have $16K of cash left over – even if not another dime of cash flowed in during the next 6 months. Folks, there isn’t a liquidity crisis here.

The last thing that gives us comfort is the fact that insiders own so much of the company, and not options, actual common shares. With 17.67 MM shares outstanding, insiders own 11.7 MM shares, or about 66%. Put yourself in their shoes and pretend that you and your partners own the majority stake in a company, which appears to be doing better. Would you suddenly embark on a wild decision making spree without sitting down and discussing business prospects at length ? While this isn’t impossible, most companies are not in the practice of shooting themselves in the foot, particularly if the insiders own so much and have been working with the company for so long.

Despite the dividend announcement, Armada remains relatively unknown. While there was a flurry of trading in the few days preceding the Q2 press release, recent volumes suggest that the broader market is still oblivious of the Armada story. We would be very surprised if any analyst types are following Armada, and we would suggest that the company remains too small for institutions, as they would regard it as “too risky” due to its size. What this means is that the price may yet flirt with prices at the lower bounds ($0.12 – $0.13), which may yet provide a “cheaper” entry for interested small investors.

While the price has moved up considerably from former lows, we believe Armada still has room to move upwards. It’s true that the “cheap prices” may be gone, but financial metrics still point to opportunity. Using Q2 numbers as a proxy for “go forward” results, the numbers suggest the following:

• Book value: The average book value multiple for Armada (2010 – 2020) has been 3x, and this should be viewed in the context of a company that may not have been as focused as it is today. Currently, at todays price ($0.15), Armada is trading at ~ 2.9x book value, so it’s no longer trading below historic lows. With that in mind, given that Armada is not a “hard asset ” company, we would defer to other valuation metrics rather than using book value in isolation.
• PE multiple: Armada has already earned $233K up to Q2. If it can get another $120K under its belt over the next two quarters, it will earn a total of (approximately) $353K for the full year, or $0.02/share. A goal of $120K over the next 6 months isn’t really that lofty, so we are suggesting this should be attainable. If Armada does indeed manage to achieve this target, it would be trading at 7.5x earnings, well under the 10x-11x market average.
• EV/EBITDA multiple: If one uses the same assumption that Armada can earn another $120K in the next 6 months, it suggests that total EBITDA for the year could land around $425K, given that Armada has already earned $270K of EBITDA up to Q2. Since Armada is sitting on a relatively large pile of cash ($669K), their EV today is just under $2.0 MM, suggesting an EV/EBITDA multiple of 4.7x. Traditionally, the typical EV/EBITDA multiple for Armada has ranged from a low of 1.95x to a high of 9.6x, with the average falling around 6x, meaning that Armada still falls under its historical EV/EBITDA multiple.
• Cash flow yield: As mentioned previously, we expect that Armada should be able to create between $0.02/share and $0.04/share of cash flow for the full year. Based on the current price of $0.15, this implies a still healthy cash flow yield between 13% and 26%.

The price of Armada is higher, but is well off it’s 52 week high.   In early January, Armada got as high as $0.20, so there is still upside. For any investors contemplating a purchase of Armada, we would keep the following in mind:

• Trading has still been choppy: While there was a flurry of activity around the Q2 press release, recent trading has been at lower volumes. We would not make large purchases (or sales) “at market”, as these have the potential to significantly move the price.
• The price will likely weaken after the dividend record date: We would not be surprised to see selling after April 30th 2021, as some investors will seek to crystallize any gains, and will already have qualified for the dividend.
• The dividend does not pose a risk to solvency: As mentioned previously, unless an unforeseen catastrophe occurs, the implementation of the dividend does not imply solvency risk.
• The book launch may yet result in increased revenues: We addressed the impact of the Armada e-book in our prior post, and given the very small amount of shares outstanding, incremental revenues from the book could provide a significant boost.
• The dividend is a vote of confidence by management: Generally, companies initiate dividends when they are confident about the future. As stated previously, given the very large insider holdings, we find it unlikely that Armada would make a decision like this unless they have put significant thought into it.

We are long on Armada, with an average purchase price of ~ $0.115 CAD, and will continue to purchase at opportunistic prices. Readers with questions or comments can direct them to mark@grey-swan.com.

It should be noted that because this update is occurring “off cycle”, we will not be delving into the typical analysis of the balance sheet, income statement, or cash flow statement. This article deals specifically with the Armada press release of January 20th, 2021. Armada should be issuing Q2 financials later this week or in early February, so we will engage in a more fulsome analysis of results at that time. For those that are interested, our initial review of Armada can be found here.

On January 20th, 2021, Armada issued a press release, in which the company announced that Armada had just released an e-book, aptly entitled “The Road to the Deal”. The intent of the book, as per the press release is to “….take away the fear and anxiety associated with buying a new car or truck. Along the way, we (Armada) discovered that removing the ‘mystery’ from the process benefits both buyers AND sellers, in that more vehicles are sold and long-term relationships are established.”

When I read this press release, I initially thought this was just another self-congratulatory press release that is typical in the small cap market. As I have mentioned in other articles, press releases are sometimes used in lieu of “real results”, and much of the time, they simply stoke investor imagination – and share price. But later that same day, I thought about it a bit more, and decided I was wrong. The share price was actually lower (after the press release) than it was earlier this month, and the more I thought about it, the more I came to the conclusion that this press release is worth talking about. Bear with me as I walk through the reasons why….

Armada is actually engaged with their shareholders. In one of our recent posts, I highlighted one of the reasons why I continue to invest in the volatile small and microcap sector. In “10 reasons why I bother…”, number 3 on the list was the fact that small and microcap CEOs will actually return your calls and emails. Keep in mind, not every company is the same, and some smaller companies could care less, but generally speaking, they are more likely to do so. When I read the Armada press release, it raised some questions – so I asked. The fact that I got a response wasn’t what was interesting, it was the speed at which it occurred. I received a full response to all my questions in less than 24 hours, and a clear indication that if there were more questions, the door was open. A willingness to clearly (and quickly) share information with shareholders in an “unfiltered” channel like a direct call or an email is a big deal. It is much easier for a company to issue a press release (or a promotional shareholder piece) and never take direct questions – it is much harder to be there at the behest of a shareholder and answer questions quickly and directly.

Armada is already in business – they aren’t talking about “having one”. This might sound painfully obvious, but it is relevant. So many of the press releases that come from small cap companies talk about the future – what they plan to do, and how much money they will make, if everything goes as planned. Or, even more breathlessly, the fact that the company has signed a non-binding expression of interest about one of the products that is in development. You may notice that paragraph has a lot of italics in it, because we are trying to highlight the ethereal quality of these statements. I think that last one is my favorite, as a non-binding expression of interest is analogous to someone looking at your car parked outside. When you go and talk to him or her, they say “Hey, I like your car, and I’d like to sign a document that says that maybe I’d like to buy your car – but just maybe”. If that happened, you might tell your neighbor, but you certainly wouldn’t get too excited. So, what we are trying to highlight here is the fact that Armada is talking about their core business, which is already generating real revenue and real cash flow. This press release is talking about something “real”, and is not contingent on a slew of variables turning out “just right”.

Armada has created a new, low cost revenue stream out of thin air. There have always been print books on this topic, and there are many websites which address new car buying, so Armada hasn’t exactly created something brand new. That being said, the point is not to dominate e-book sales in this category, but to inject oneself into that space. Tim Hortons sells coffee, Starbucks sells coffee, and Second Cup sells coffee – they all sell the same thing. However, all of these companies also realized that some people want a latte or small espresso. Armada was already in the “regular coffee” business with their CarCostCanada member service – but some people didn’t want a “regular coffee” for the price of the membership. With the e-book, they are also selling their version of an “espresso”, an area in which previously they were getting zero revenue from.

People will always find the purchase of a new car stressful. Next to buying a house, buying a new car is perhaps the 2nd most expensive purchase a person can make. For most people, this is stressful, which is validated by 3rd party articles that say the same. The e-book addresses this, and will make it more probable that someone will take the “new car plunge”. You have to remember, Armada doesn’t care who you buy the car from, they are simply interested in the fact that you want to buy a new car. This is similar to the “picks and shovels concept” that was so prevalent in gold rush towns. The miners were all looking for the motherlode, but the shopkeepers were in the middle, selling the supplies to help the miners in their quest. Consumers are looking for the “best deal”, and Armada is like those shopkeepers, extracting a slice of value in the process.

A small amount of e-book sales is material. So, you are probably agreeing that the purchase of a new car is stressful, but not everyone is going to run out to buy this book – and I totally agree. But here’s the rub – not everybody has to buy the book. According to StatsCan, about 1.44 MM new cars were purchased in Canada last year – and that was a slow year, due to COVID. Let us assume that a very small fraction of people, just 1%, decide that an e-book would help them in their purchase of a new vehicle. Additionally, let’s assume that 30% of the $29.95 cost of the book is lost to the online channel, such as Amazon or Apple books. The simple math says this:

1,440,000 new car purchases x 1% x $29.95 book price x 70% = $301,896

That last number looks small, but the thing is, Armada is a small company, with a small number of shares outstanding (17.67 MM), which also hasn’t diluted the shareholder base to death. This means that this “small” $301,896 equates to incremental EBITDA of $0.017/share – not bad, given that 99% of the potential buyers have passed on the book in this example. In addition to this, Armada (as per their most recent audited statements) has significant tax pools that remain unutilized, which could be used to reduce taxes in the future. This means that any additional earnings could be sheltered from tax, and if one were to apply a “market average” 10x multiple, this incremental $0.017/share could be worth $0.17 in isolation. The moral here – small companies with a small numbers of shares outstanding don’t need enormous earnings bumps to make a difference in the share price.

Most importantly, the book creates awareness – and probably new customers. Not only will the e-book create another revenue stream, but it’s going to drive incremental business for Armada. When you think about it, there are currently two classes of people out there when it comes to new car purchases – the relatively small population that is already using the Armada product offerings, and the very large population that is not. For that group that is already dealing with Armada, it will simply provide them with another possible product offering. For that other, very large population, it creates a pathway to potentially engage Armada when they decide to buy a new car, when previously, they might not even have known about Armada, CarCostCanada, or the other Armada product offerings.

Even prior to the e-book, Armada looked attractive. Readers of our initial Armada article will recall that we suggested the valuation was very attractive at that time (early December 2020), and even at the higher price of $0.175/share, the valuation continues to be attractive. In our “Recognizing small cap opportunities” article, we indicated that small cap companies can provide cues well in advance, before the price runs away. In our original Armada article, we suggested that Armada was undervalued even if it executed at “underwhelming” levels for the next three quarters. Given that Armada has just created a brand new revenue stream, we would suggest the following for consideration: In their fiscal Q1, Armada created $0.0135/share of EBITDA and $0.0128/share of earnings. It stands to reason that with a new revenue stream, the probability that Armada continues to meet (or possibly exceed) this level increases. If Armada were simply to perform at the same level, with no uptick from the sale of the e-book or related business lines, this would suggest full year EBITDA and EPS of $0.054 and $0.0512 respectively. These results in turn imply a current valuation (today) of:

• A PE multiple of 3.4
• An EV/EBITDA multiple of 2.72, which is reflective of Armada’s high cash balance.
• An operating cash flow yield of 29%, if one uses EBITDA as a proxy for operating cash flow.

All of these valuation parameters, in conjunction with the fact that the float is small, and the company has no debt, skew Armada into the realm of “very interesting”. If the e-book increases revenues beyond these levels, then the upside is much greater – which is why I continue to hold Armada, and purchase at opportunistic prices.

For those that have questions or comments, I can be reached at mark@grey-swan.com.

In the universe of “small companies”, Armada may take the crown for being the smallest market cap company covered here. With only 17.67 MM shares outstanding, and a (current) market price of $0.13, the market cap of just over $2.0 MM is by all measures small, if not microscopic. But as the saying goes, good things come in small packages, and the current Q1 financials for Armada suggest that while they are indeed small, they are off to a blistering start to fiscal 2021.

Who is Armada ? Armada, which is based in Mississauga Ontario, has been around as a public company since 1999, but only started reporting as Armada data (and using the name) since 2004. In its current form, the company website states that the company  “specializes in the collection, re-packaging and distribution of Canadian new car pricing data.“, so it truly is a data only company – but that wasn’t always the case. At one point, Armada had a significant interest in the operations of “Mr. Beer”, which was referred to as their “bottle brew division”. Needless to say, while the combination of these two was surely interesting, there were little or no synergies to be had by these two lines of business. The Mr. Beer division was shut down in January of 2015, and Armada embarked on a more focused business plan. As of December of 2020, they have a singular focus, the automotive data market.

The Armada chart is waking up. We have been long Armada shares since early 2018, with an initial purchase around $0.15, and eventually averaging down to around $0.115, which means we were “early to the party”. From 2018 through to most of 2020, the Armada investment was dead money. However, solid Q1 financials have brought some life back to the chart. The shares have come off their lows, and even at prices around $0.12 – $0.13, Armada shares are still fundamentally cheap.

The balance sheet is cash rich and debt free. Readers who visit often may say this is an oft repeated line, but that’s the way we like our companies. Armada is no different – cash is up both on a YoY and 3 month basis, as are current assets and total assets. While there is some Goodwill and Intangibles on the balance sheet, there hasn’t been “inflation” of these assets, and they comprise a fairly small part ( ~ 15%) of the total asset base. Additionally, both short term and total liabilities have fallen, and there is no long term debt to worry about. For those looking for “book value”, it should be noted that Armada isn’t a “deep value” play when viewed in a book value context, and this isn’t what we are looking for. As a “data services” company, the value of Armada lies in the ability to leverage soft assets, not in the “bedrock” value of hard assets. In any case, the balance sheet suggests that Armada won’t be faced with undue financial pressure any time soon. The fact that the retained earnings deficit continues to shrink is also good news – which brings us to the Income statement.

Revenues and earnings are up significantly. During the prior fiscal year, Armada achieved total revenues of $3.28 MM, so the fact that they hit over $1.0 MM in one quarter is significant. While costs have come up along with revenues, the growth in revenues YoY of + 29% outweighs the +19% growth in total costs, which means earnings are still up 130% YoY. It might be argued that some of this revenue may be attributable to pent up demand after a prolonged COVID lockdown, but even if that is the case, if Armada can bring in a grand total of $127,000 of net earnings for the remainder of the year, it will achieve total net income (for the fiscal year) of $353,000, or $0.02/share – which would be its highest net income recorded going back as far as 2011. In turn, if it achieves $0.02/share in net income, then it suggests an earnings multiple (today) of 6.5x. Essentially, a higher valuation is well within reach. If Armada achieves EPS of $0.02 and the multiple corrects to 10x – 11x, the upside today is still ~ 50%.

Cash flow is solid on all fronts. Despite some hiccups on labelling of the cash flow statement (see below), cash flow is solid both before and after changes in working capital. If one assumes that (a) Armada can repeat this over the next three quarters, and (b) one selects the lower of the two cash flows ($159,562, after changes in working capital), it would bring in $638,000 for the fiscal year, or about $0.036/share. At todays price of $0.12 – $0.13, this implies a very attractive cash flow yield of around 30%.

Insiders have held a significant position since the beginning. Insider holdings that stay consistent over the long haul indicate executives and management are committed to the long term success of the company, as they have maintained their “skin in the game”. Armada has a very strong insider following, as the three largest insiders hold approximately 11.74 MM shares, or about 66%.

• James Robert Matthews (CEO) – owns 3.55 MM shares (20%).
• Paul & Daniela Timoteo (former director & spouse) – in aggregate own 6.48 MM shares (37%). It should be noted that Paul Timoteo passed away in 2012, so my assumption is that the shares that were listed under his control (3.0 MM shares) are now controlled by his spouse.
• Eli Oszlak (VP & CTO) – Owns 1.7 MM shares (10%).

With this level of insider holdings, it suggests that there is clear alignment between the management/executives of Armada and the average shareholder.

No analyst coverage and no self promotion. We recognize that this is a two way street, in that attention moves the share price, and lack of attention doesn’t. However, we are approaching this from the lens of someone who might want to accumulate shares of Armada, not someone who already has them. Arguably, there has been an increased amount of attention focused on Armada recently, but this is entirely due to solid financial results. The amount of eyeballs that this company has drawn is still fairly small, so the shares are (at this point) by no means “overhyped”. Given the tiny market cap, we don’t expect any analyst coverage any time soon, so unless something unforeseen draws more eyes to the Armada story, it will continue to trade almost solely on the merits of financial performance.

No share issuance, and it’s unlikely there will be a capital raise. The company has not issued shares since 2013, and we believe it’s highly unlikely that there will be significant dilution any time soon. If the company continues to execute at the same level as its Q1 numbers, then there is no need to raise outside capital.

The product offering might not be “disruptive”, but some of it is very timely. Armada has been involved in the “digital” side of the car business for some time, as the CarCostCanada website has offered pricing information to consumers since 1999. But over the last year, consumer behavior has shifted even more to an online presence, as COVID imposed lockdowns and mandated social distancing has meant that even more consumers have gravitated to digital solutions. On the other side of the coin, dealers who traditionally conducted much of their business face to face are finding a growing volume of requests from consumers are coming via an electronic format – and they need to keep up. Armada issued a press release on October 30th 2020 about their agreement with ETA Response Inc., a technology company that specializes in managing the online relationship between consumers and companies, thereby ensuring that dealers adequately respond to customer requests and concerns. Incremental agreements such as this dovetail nicely with the Armada business model, and are the “right solution at the right time” given how COVID has forced changes in how both consumers and service providers interact.

In summary, the valuation is in a sweet spot – even if Q1 is anomalous. As mentioned previously, at the current price ($0.13), the shares are still inexpensive on several fronts. While Q1 may have benefitted from pent up COVID demand, the impacts of this quarter means that even if other quarters underperform (on a relative basis), the shares are still relatively inexpensive. For the sake of argument, let’s assume that Armada achieves at the following “underwhelming” level, as shown by the table below:

If Armada can achieve revenues over the next three quarters that are 30% lower, and is saddled with a much higher COGS%, it can still achieve EBITDA of just over $400,000 that is within earshot of its highest ever EBITDA ($465,000 in 2011). Additionally, at this muted performance, it would also achieve EPS of $0.02, which would be its best EPS since 2011. At the current price, the only thing Armada needs for a 50% return (from $0.13 to $0.20) is to hit mediocre targets, and a reversion to a market average 10x earnings multiple. Other valuation parameters suggest the same.

• Book value: Using data going back to 2010, Armada has traded at an average of 3x book value. At the current price ($0.13) and a tangible book value of $0.05/share, Armada is trading at 2.5x book value, slightly under its long term average. It should be noted that fiscal 2015 was excluded from this dataset, as Armada tangible equity was slightly negative that year.
• PE multiple: As already indicated, Armada needs to execute at a “mediocre” level, and the PE multiple needs to normalize to a market average 10x, which would provide 50% upside from todays price.
• EV/EBITDA multiple: Since 2010, the typical EV/EBITDA multiple for Armada has ranged from a low of 1.95x to a high of 9.6x, with the average falling around 6x. The current EV/EBITDA multiple, again assuming mediocre results for the remaining quarters, is 4.4x.
• Cash flow yield: Lastly, if one uses EBITDA as a proxy for cash flow, and Armada executes at the levels shown above, it will achieve $0.023/share in cash flow. This suggests a healthy current cash flow yield of 17.5%.

On the other hand, if Armada can execute at levels similar to Q1, then there is much more upside – but that remains to be seen.

At the current price, Armada provide low risk, small cap potential.  The reason investors look to small and micro cap companies is because they provide the potential for non-linear upside. As every small cap investor knows, it is extremely difficult to make the perfect pick with the perfect timing – but sometimes it is possible to make a very good pick which provides the possibility of abnormal (100% or more) upside, an even greater probability of more reasonable (but still attractive) upside (~50%), and a minimal risk of dilution or bankruptcy. With this in mind, the Armada opportunity can be summed up in the following bullet points:

• Trading may still be choppy in the short term: While liquidity has improved, trading will likely be choppy until another decent quarter comes out.
• The chart is looking attractive: From a technical perspective, the price appears to have turned the corner, with all MAVGs exhibiting a tell tale upward move.
• Investors needn’t worry about bankruptcy or dilution risk: Barring a direct hit by an asteroid, it is highly unlikely that bankruptcy/insolvency is an issue, and Armada has not demonstrated a propensity to dilute existing shareholders.
• COVID may be a partial impetus for improving results: The change in consumer behavior due to COVID may have juiced the recent Armada results, and if this is the case, the long term change in consumer behavior may continue to do so.
• As is the case with many small caps, try & bid at the lower end: Trading volume has picked up, but pricing will likely be volatile. Given this situation, one can bid at the lower end of the bid/ask spread rather than hitting the ask right away.
• Patient investors may see the greatest returns: If Armada continues to execute at Q1 levels, then potential EPS could be closer to $0.05/share, which suggests much more upside. If this is the case, then investors will have resist the urge to make the “easy 50%”.

I am long on Armada, with an average purchase price of ~ $0.115 CAD, and will continue to purchase at opportunistic prices.

As always, these are only my thoughts & opinions. If you have questions or comments, I can always be reached at mark@grey-swan.com.