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Small company big opportunity

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Investment Thesis

VerifyMe (VRME) is a company that provider of comprehensive brand protection and customer engagement solutions that combine ultra-secure product authentication, track and trace, and customised engagement strategies with industry-leading online retail monitoring capabilities. The number of counterfeit items had increased substantially in recent years, especially in the e-commerce space with items such as apparel, collectibles, and cosmetics as customers are not able to purchase and check the goods directly in person.

Products

The company offers three main solutions which are VerifyMe Authenticate, VerifyMe Engage, and VerifyMe Track & Trace. Each solution leverages different in-house patented technology such as VerifyInk, VerifyLabel, VerifyCode, VerifyChecker to help enhance its performance. These solutions combine provides high security and customer engagement capabilities for companies with different needs.

VerifyInk: VerifyInk provides an invisible ink that cannot be seen or altered, the ink uses invisible pigments to print variable hidden images or item-level serialisation and can be integrated into products at the point of manufacture to create authentication measures.

VerifyLabel: VerifyLabel uses VerifyInk to create QR codes and tamper-evident labels to protect products and allows companies to easily recognise counterfeit products that do not consist of the unique QR code and label.

VerifyCode: VerifyCode uses VerifyInk to generate invisible codes for each item in a shipment. The codes are serialised, scanned, and associated with dedicated case packs, pallets, and shipping containers and allow companies to track the shipment using the code.

VerifyChecker: VerifyChecker is a device that leverages all the technology above. The device ables the company to scan the label or the code to instantly see whether the product is authentic, and it can also record data such as when and where the item is being scanned during transit for the company to track and trace the product.

Addressable market

I believe the market for the product is really big as brands are seeking ways to easily authenticate items and to eliminate the threat of rising counterfeit goods that are hurting the company’s sales and reputation. Some of the main areas that will likely be interested in the product include apparel companies, pharmaceutical companies, cosmetic companies, and food and beverages companies. The solutions are also really easy to integrate and user-friendly and will not disrupt the current logistics routine of the company. The company recently partnered with Renavotio to add anti-counterfeiting, track and trace, and brand protection solutions to Personal Protective Equipment. It received and delivered an initial purchase order for 2 million pre-printed anti-counterfeiting labels for 2 million boxes of surgical gloves. This partnership proves the attractiveness of VerifyMe’s solutions and I believe there will be more and more partnerships as the addressable market grows.

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Financials

In the first quarter of 2021, revenues are $188 thousand for the three months ended March 31, 2021, compared to $92 thousand a year ago which represents a stellar 104% growth whereas gross profits increased from $75 thousand to $145 thousand which almost doubled. The company is posted a ($0.19) fully diluted loss per share compare to ($0.49) fully diluted loss per share a year ago. Gross margin dropped from 82% to 77% due to a change in product mix but margins are still looking very healthy and I think high margin can be sustained in the long term due to the nature of its business model. One thing to note is that company spent a lot of money on sales and marketing as sales and marketing expenses increased from $43 thousand to $247 thousand. This is a very positive sign as the company is growing its sales team to address a growing pipeline of domestic and international opportunities. Their balance sheet is very healthy with only $505 thousand in debt and $15.4 million of cash in hand. Analysts forecast the company to have positive earnings per share of 0.41 and revenue of $100 million in 2022 which represents a 127% revenue growth from 2021. Using these numbers at the current share price the company is valued at a forward 22 PE of 10.63 and a forward price to sales ratio of 3.24. There are not many similar companies that are public but when compare to other stocks growing at a similar pace, VerifyMe is trading at a significant discount. However, it is important to note that this a micro-cap company, therefore, the share price is really volatile and can be easily manipulated therefore I rate this as a speculative buy at the current price.

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