Versus Systems - Stocktrades Canada

VS has had a good run lately, (40 cents to around a buck) after accounting for a 16 for 1 consolidation to get on the NASDAQ in the near term. The company as it describes itself “has developed a proprietary in-game prizing and promotions engine that allows game publishers and developers to offer in-game and in-app prizing across mobile, console, PC games and streaming media. Brands pay to place products in game and gamers compete for those prizes”.

I have talked to someone who knows the space well and he says it is exploding partly due to COVID and partly because it was pre COVID because of the proliferation of gamers, gaming and large companies recognizing offering prizes gets and keeps people on their sites. I just read some nice comments on the management and as we have all seen, going to the Naz has been pretty good for many a stock. Do you know anything about this stock? I am never sure what is promo and what is real with these small caps, but my friends comments make me think it may be a good stock to get into the gaming space. Do you guys know anything about this co?

BTW, I printed out your watchlist when I joined in Oct and compared it to todays sp, nice job. Looking forward to some new watchlist additions, as you have set a high bar 🙂

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Asked on December 24, 2020 4:20 pm

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Hi there,

First off - yeah, the watchlist has performed quite well. Volatile (as expected with some of those stocks) but overall happy with where many of those stocks have gone.

In terms of VS (Versus Systems), it has had a very nice run and it does seem the uplist to Nasdaq has helped in a big way. Personally, I like the gaming space alot (and online gambling) as we are early days here there is plenty of room for growth. The problem is, many companies in the space are speculative plays with unproven business models - therein lies my issue. There are countless examples of speculative plays that never end up proving their business model despite operating in a 'hot' industry. This makes trying to figure out which will be winners in the long term is a difficult task. I am not a momentum investor, so the short-term doesn't interest me as that in of itself is akin to gambling.

VS falls in this bucket for me. I like the space, I like the promise of delivery and its products/services look promising. Current valuations however, do seem a little stretched. It trades at a $150M market cap and has only generated about $1.4M in revenue over the past 12 months. The good news? It only generated $664K last year, so revenue growth is accelerating. Can it double again in 2021? Very possible, but even if it more than doubles and generates $5M in revenue next year, that still gives it a forward P/S ratio of 30 - which isn't cheap.

It is also worth noting, the company's stock is in oversold territory with an 14_DAY RSI of 82. Although not a guarantee, that could lead to a short term pull back. Be mindful that stocks that have shot up this fast, can correct just as quickly. Look at Acquity Ads Holdings - Crashed from $20 to $14 after being in overbought territory for a few days. Not saying this will happen with VS, but its a possibility. At this point, the quick 'buck' has already been made. IMO, I'd wait to see if a correction comes, or if there is evidence of a path to more than $10M in revenue to justify this type of valuation.

Not saying its a bad stock, a bad company and won't be successful, but I find its priced to perfection here.

Mat

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Posted by Mathieu Litalien

Answered on December 26, 2020 1:28 pm

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