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Two beaten-down microcap names that are making all the right moves: Mogo Finance Technology and Data I/O

With upcoming earnings reports, these two tech names could get their shares off the mat

a bar chart made of bitcoins
Data I/O's stock is more than 60% below its late November high, while Mogo Financial's chart is still coming into focus

The best ideas are often the simplest.

When Travis Kalanick and Garrett Camp where unable to hail a cab on a snowy evening in Paris, they came up with the idea for Uber. Their idea was beautifully simple; they wanted the ability to request a ride on their phone, whenever and wherever they were at the time.

Kalanick and Camp’s desire to make hailing a cab easier has revolutionized the transportation industry. And in the process, their brainchild, Uber, has grown into $62 billion company (as of the company’s latest fund-raise).

Today there’s another revolution taking place, but it isn’t in the transportation sector; it’s in the financial industry.

“If your pitch can’t fit on a beer mat, a napkin, or the back of an envelope, I’d rather listen to someone else’s pitch that can fit.”

–Richard Branson, billionaire entrepreneur

After growing frustrated with trying to pay off years of mounting credit card debt, David Feller, along with his twin brother Greg, came up with a simple idea to solve a big problem. And in 2003, Mogo Finance Technology Inc (NASDAQ:MOGO), the Vancouver-based financial technology company, was created to shake up the credit card and payday loan markets.

Today, in the same way Uber allows you to use your smartphone to hail a ride and have it at your feet within a few minutes, Mogo’s mobile-first platform makes it possible for consumers to sign up for a free or Premium MogoAccount in only three minutes and begin borrowing money, monitoring their credit score, and even trade Bitcoin.

On March 29, 2018, Mogo became the first company in Canada to offer its customers a mobile solution for buying and selling bitcoin in a way that includes free funding transfers and withdrawals.

And on Wednesday, August 8, 2018, Mogo Finance Technology will release its second-quarter 2018 financial results, and we’ll see whether the US$79mln company’s crypto initiative is having an impact on its top and bottom lines.

Having uplisted to the Nasdaq on April 18, 2018, US investors don’t have years of prior data to draw from. But if you look at the chart of the Toronto-listed shares, the longer-term trend becomes clearer.

That said, after reporting a 58% year-over-year quarterly surge in operating revenue last quarter, another strong quarter with operating revenue coming in above US$10.25mln (representing a 20% year-over-year growth from 2Q 2017) and a weekly close above US$3.50 should be enough to put a firm bid under the company’s shares.

Data I/O gets in the driver’s seat

While it’s unlikely anyone will describe the products Data I/O Corp (NASDAQ:DAIO) makes and the services they provide as exciting or straightforward, the need for this company’s expertise is easy to understand.

According to the Clemson University Vehicular Electronics Laboratory, a modern-day automobile has approximately 50 computer-controlled electronic systems. And while Data I/O isn’t responsible for making the various electronic systems, it does provide the programming and security necessary to keep many of the 50 computer-controlled electronic systems operating correctly.

Data I/O provides companies such as Panasonic, Bosch, LG, Foxconn, Flextronics, Apple, Amazon, and Microsoft with advanced programming and intellectual property management solutions, which are then used in the manufacturing of flash memory microcontrollers and flash-memory based devices.

The bottom line is Data I/O has linked its future to the growth of automotive electronics, the computerization of the average consumer, and the future need for security provisioning for the Internet of Things (IoT).

Financially, Data I/O is in great shape.

The company has a US$51mln market cap but carries zero long-term debt and at the end of 1Q 2018 reported having more than US16.8mln in cash and short-term investments sitting in the bank. So, with only 8.3 million shares outstanding, US$2.7 in cash per share of Data I/O's outstanding stock. 

Where that company has struggled is in its ability to grow top-line revenue.

For four quarters beginning in the fourth quarter of 2016, Data I/O grew quarterly year-over-year revenue between 26% and 57%. But the company, for better or worse, sells capital goods. And capital goods are a cyclical industry.

So, when top-line revenue growth slowed at the tail end of 2017 and into 2018, Data I/O’s stock price paid the price. And now, as the company prepares to release its second-quarter results Thursday, July 26, 2018, the stock is trading more than 60% beneath its late November 2017 high.

From a technical perspective, a post-earnings rally above $8 would turn me bullish on the stock.

Alternatively, dip buyers looking to establish a position on further weakness could target $5, which is where the stock was trading between late February 2017 and early April 2017 before it sprang to life and more than tripled in less than seven months.

Second-quarter results won’t likely show revenue growth, but if management is bullish on their quarterly call (scheduled for 5 pm ET July 26, 2018) and notes that customers are working through the inventory they purchased between 4Q 2016 and 4Q 2017, this US$51mln microcap might finally be ready to trade back toward the double-digits.

 

At the time of publication, Bob Byrne had no positions in the stocks mentioned.

Quick facts: Data I/O Corporation

Price: 3.9 USD

NASDAQ:DAIO
Market: NASDAQ
Market Cap: $32 m
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