7/14/2014

Flexible Solutions (FSI) : Deep Neglect Deep Value Tiny Capitalization


A risky,ignored,value idea with growth potential. 

Flexible Solutions (FSI) “is the developer and manufacturer of biodegradable polymers for oil extraction, detergent ingredients and water treatment as well as crop nutrient availability chemistry. Flexible Solutions also manufactures biodegradable and environmentally safe water and energy conservation technologies.” Source Corporate Website


Future revenue and cash flow growth driven by large opportunities existing in technology within their NanoChem division.NanoChem solutions produce most of FSI’s revenue and cash flow. 



Biodegradable Polyaspartate sold by NanoChem benefits a wide range of industrial, agricultural and consumer markets. It provides a unique enhancement to various products and processes with a non toxic compound.

“In oil production, NanoChem's Polyasparate address a significant market for the prevention of scale and corrosion on oil producing platforms.In agriculture, these biodegradable proteins increase the efficiency of fertilizers, reducing fertilizer costs and ground water contamination while improving crop yields.Other products utilizing the Company's technology offer environmentally friendly improvements on products for the water treatment markets and for consumer detergents.” Source NanoChem Solutions











In addition to the NanoChem subsidiary, Flexible Solutions (FSI)offers other products that save water and energy; safe, organic and biodegrade. Flexible Solutions is an environmental technology company that researches, develops, manufactures, and markets chemicals that slow evaporation of water. Products include HEATSAVR, WATERSAVR, and ECOSAVR.


Ecosavr is a liquid solar pool cover that conserves heat and evaporation from pools. Heatsavr reduces a pool's energy demands and evaporation. WATERSAVR slows water evaporation in "reservoirs, potable water storage tanks, and livestock watering ponds, aqueducts, canals, and irrigation ditches". In addition it’s applicable for lawn care, potted and bedding plants. Further, Flexible Solutions offers biodegradable "TPA" along with patent pending nitrogen stabilizer for agriculture application announced 04/14/14.

Furthermore, "TPA" a thermal polyaspartate biopolymers is applicable for oil fields to “reduce scale and corrosion in various water systems”. Agricultural industry applications reduce fertilizer crystallization, “prevent early plugging of drip irrigation ports”, reduce maintenance costs and extend equipment’s useful life. Lastly, it’s used in personal care products, shampoo and cosmetics. Flexible Solutions founded in 1991 is headquartered in Canada.



Flexible Solutions (FSI)is a financially strong but tiny company, market capitalization 9.87M, enterprise value 12.33M.
   
The stock has been oversold, trading at a deep discount to historical and industry valuations. The horrible per share price performance is not justified by improved financial statement changes.

Price change over the prior 52 weeks was -33.33%, 3 year change -36.65% versus industry return of +24.32%.The table below shows FSI's material financial improvements.

Fiscal year end 2009 book value per share was .79. This per share book value improved 6.32% to MRQ .84. The price dropped over the same period by -52.98%.A 2009 fiscal year end price of $1.68 to the most recent price of $0.75. Further, Revenue and gross profit per share from fiscal year end 2009 to the MRQ improved by 64.29% and 40.34% respectively. 

Yet, SGA per share expense increased 52.35% for the same period. CEO 2009 compensation of  $177,000 increased 259.61% or $459,514 to $636,514 for the TTM. Note the per share price change over that period of -52.98%.

The stock trades at a historical low valuation for P/TB. The MRQ P/TB was .90 versus 2009 P/TB of 2.15. EV/Revenue materially improved to historical low EV/Rev of .86, 2009 EV/Rev 2.71.






















The stock is risky. The risk primarily relates to its size,39 full time employees. Also, competition, expenses to market and develop/improve products, stocks is relatively illiquid, closely held with insider ownership at 47.93%. I have a small long position. 

Current Valuation:
Market Cap: 9.75M , Enterprise Value :   12.33M
Trailing P/E:   6.07 , Price/Sales (ttm):  0.66 , Price/Book (mrq):  0.90
Enterprise Value/Revenue (ttm):   0.82
Profit Margin (ttm):   10.60% , Return on Equity (ttm): 15.31%
Revenue (ttm):  15.11M, Qtrly Revenue Growth (yoy):   -15.40%
Gross Profit (ttm):  4.53M,  Book Value Per Share (mrq):  0.84
52-Week Change:   -33.33% , 52-Week High :  1.35 , 52-Week Low:     0.52
Shares Outstanding:    13.17M , Float:  6.85M
% Held by Insiders:    47.93% , % Held by Institutions:   12.30%

Long: FSI

update 07/16/14

"Today the Company announces that The City of Wichita Falls, Texas has approved a project to apply WaterSavr™ to the Lake Arrowhead Reservoir that supplies the City of Wichita Falls."


“WaterSavr™ is an evaporation reduction aid that has significantly reduced water loss in multiple studies around the world. It is approved for use in the USA by the National Sanitation Foundation (NSF) under Schedule 60. WaterSavr™ is 100% biodegradable and composed of only food grade ingredients. It is made in the USA. In several studies it has reduced evaporation from reservoirs by more than 30%. Evaporation is the largest form of water loss suffered by reservoirs in the region and it has been calculated that if Wichita Falls can save 10% of the water that normally evaporates each year, the saving would be greater than 1/3 of its annual consumption by the city of the year.

2 comments:

Fred said...

Hello John,

I saw that te stock was on fire monday (>50%), but I don't see any news or a report (eg Seeking Alpha).
Do you have an idea what happened?

Br,

Fred

ShadowStock said...

Hi Fred, Sorry I was unable to respond!

FSI was up again, 6.89% today(07/31/14). The stock caught the eye of investors and traders based on the deal with Wichita Falls Texas. Wichita Falls will use their water saving chemicals to slow water loss from the drought. If successful the profit potential from other counties could be a game changer for the company. So, FSI has moved on speculation of more deals. John