Market Turmoil: Reassessing Current Holdings Part 1 (GROW)
What a few days it's been.
Crytpo soaring, then crypto crashing.
Tech flying, then tech crashing.
You name it, it's happened. The market is definitely a bit shaky.
For most investors, it's been a brutal month and the future has become increasingly bleak.
So, what the hell do we do?
With most of my holdings taking a massive haircut, I want to take the time to reassess my book to determine if they can still offer compelling long-term investment returns.
Let's dive in:
Going into March 2021, GROW was my biggest holding by far. At that point, it was likely 60% of my portfolio. Fundamentally, things were working out nicely.
JETS Assets Under Management (AUM) was settling around $4 billion (remember GROW earns 0.60% annually from this), GROW's mutual funds were remaining steady, HIVE, GROW's strategic crypto asset, was performing well, and GROW's other investments in GoldSpot Discoveries and Thunderbird were on the up and up.
My price target at the time was $15 on the basis that if Ethereum would rise, so would HIVE and so would GROW.
I was very wrong.
Despite the massive rally in Ethereum from $1,800 to $4,000 - HIVE, which mines Ethereum and should theoretically rise with the crypto currency - took a massive tumble. Shares went from $7 CAD to as low at $3 CAD.
That was not good news for GROW.
So, what did I do?
On the massive run-up from $6.36 to $12.89 I sold 1/3 of my position in the $10 - $12 range.
HIVE has a bright future assuming Ethereum continues its upward trajectory, however GROW's share price got ahead of itself way too fast.
Despite the stock not hitting my price target of $15, I thought it would be a good idea to take some off the table on the way up.
Thankfully, that worked out nicely.
But, what I did next seems to have been really dumb.
GROW dropped rapidly to the $10 range, then the $9 range, and then the $8 range.
I re-entered at $8.25.
I thought I was a genius for selling high and waiting to re-enter in the $8ish range. But, everyone thinks they are a genius until the market comes soaring in with a kick straight to the gut.
Today, at $6.30, it appears I tried catching a falling knife.
So, outside of some hefty unrealized losses, where does that leave me?
HIVE has tumbled to new lows, JETS AUM isn't as steady as I thought it was (AUM as of this morning was $3.6 billion), and GROW's expenses are still a little higher than I expected.
The future isn't as bright as it once was, but I think the market has turned overly pessimistic.
Let's take a look at GROW's assets:
GROW has a $15MM loan earning 8% from HIVE
GROW has $10MM in cash
GROW has $3MM in accounts receivables
GROW has $6MM in debt investments that are safe from impairment
GROW has a $5MM (conservatively valued) office building in Texas
GROW has $7MM invested alongside their mutual funds
GROW has $4MM invested in Thunderbird Entertainment
GROW has $0.5MM invested in GoldSpot Discoveries
GROW has $0.5MM invested in a blockchain-focused limited partnership
Grow has $10.5MM in total liabilities.
So, when you buy GROW at its current market cap of $97MM, you are really getting $40MM ($51MM - $11MM) back in assets excluding all of their liabilities.
So for $57MM ($90MM - $40MM), if (big if over here) JETS stays in the $3.5 billion range and their mutual funds and investments aren't impaired too much over the next year AND GROW can maintain a $12MM annual run-up expense figure, you'd be looking at a $57MM generating $10MM - $12MM in cash flow per year.
That's just around a 20% return.
So, putting it all together, GROW has some upside here.
With HIVE tumbling, JETS peeling back some assets, and expenses a little higher than I like do I think it GROW is worth $15? No.
But do I think it's worth $8 - $10. Definitely.
HIVE is in the process of up-listing from the OTC pink sheet exchange to the NASDAQ. If the stock picks up steam, I'd imagine GROW will follow.
That would also put GROW's warrants in HIVE in the money and potentially worth a lot.
Let's hope I'm not wrong here, but I think I can squeeze out a 30% - 50% return here over the next 3 - 6 months.
Good luck to all.
Later blog posts will update the following other holdings I have: BTN, LAZY, LAZYW, ICLTF, WELX, SNNY, and RCG
Disclaimer: NOT INVESTMENT ADVICE