E Pacific Safety Products’ Unknown Turnaround Offers Huge Upside

TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

  • Pacific Safety Products is a vastly undervalued micro-cap operating in the security equipment industry.
  • Investors never heard of this stock. You won’t find any coverage on investment platforms like this one and no mentions on social media, Yahoo message boards or Investorshub.
  • This company sports a sound balance sheet, makes a profit and is growing rapidly, yet trades at a ttm price/sales ratio of just 0.5.
  • The CEO recently bought 449k shares in the open market. Last week, the Chairman of the Board of Directors accumulated 100k. 
  • Short-term, investor awareness and a blow-out earnings report early August could drive shares up substantially.

Upfront note: the main listing is on the Toronto Venture Exchange, ticker = PSP.V. The company also lists on the US OTC Board under the ticker PCSFF, but without any trading volume. All dollar amounts mentioned in this article are Canadian.

I discovered a micro-cap stock trading on the Toronto Venture Exchange that doesn't appear on investor's radar, but actually presents a surprisingly compelling risk/reward opportunity: Pacific Safety Products (PCSFF). Just based on the tiny market cap - $10 million - you would assume this company isn't worth much. I don't blame you, but this case is different. Pacific Safety Products generates a ttm annual revenue of $20 million, is profitable and sports a sound balance sheet. A streak of contract wins with big customers like the US Navy makes up for strong revenue growth, and there's a clear trend the company's financials will continue to move in the right direction.

The more I looked into this stock, the more significant the mis-pricing became clear to me. When I found out that key insiders recently bought large amounts of shares in the open market, I decided to initiate a long position too.

About Pacific Safety Products

Pacific Safety Products is the largest body armor manufacturer in Canada, directly supplying to all kinds of Canadian and US law enforcement agencies. In Canada, the company is a market leader dominating 70% of the market. As for the US, management has initiated steps to increase its market share.

Interestingly, this is the only Canadian company that designs and manufactures soft body armor that is certified to the latest and most stringent NIJ-0101.06 standard. Their technology, connections in this space and their capabilities to manufacture and deliver the goods in time safeguards the company's competitive edge.

Historically, its former management has not done a good job creating shareholder value. As a matter of fact, several missteps led to an almost decade of losses and the stock price to collapse from over $1 to below $0.10. But 2 years ago a successful turn-around started to take place. A new management team refreshed the product line, cut expenses, signed up new customers and cleaned up the balance sheet. Despite a wide array of business improvements, the stock hasn't really moved from all-time lows, presenting investors a clear case of significant mis-pricing.

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Disclosure: The author is long PSP.V.

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