By Kyle Landeck
Experienced investors know to watch out for one signal above and beyond all others: turning profitable on an EBITDA basis.
“EBITDA” means “earnings before interest, taxes, depreciation, and amortization”. A good way to think about this is through a thought experiment. Imagine a car sitting on the side of the road with no engine at all under the hood. Your job is to get the car running and drive it across the country.
The first thing you’d have to do is build and install an engine. Assuming you had capital to invest in the project, let’s say you were able to accomplish this step. The next step would be to do maintenance on all the basic stuff that can wear down or run out, including replacing the oil filter and oil, rotating the tires, and filling the gas tank.
Once you get to that step, you can start it up and take off. It will either run well or not. That’s where the rubber meets the road.
Most businesses can be understood in the same terms from the standpoint of an investor: the fixed costs in setting up the business are similar to the costs of building and installing the engine. But the maintenance and fuel costs represent the variable operating costs that keep the business in action as a going concern over time. If a business has a model that “works” on these terms, then it is generally a good investment. The simplest way to evaluate that question about any business is to see how profitable it is on an EBITDA basis. A company that is able to make money on this basis is, all else equal, a “good investment”.
Most sub-penny stocks are not “good investments”. Sure, they can be. But, as a rule, this is rare. That’s why ISWH is so interesting right now.
“…this is a three engine plane that has basically been flying on one engine over recent months. But that’s all about to change.”
Given all of that, we would like to cast a special spotlight on International Spirits & Wellness Holdings, Inc. (OTCMKTS:ISWH), a company that frames itself as “a top-tier brand incubator in the Spirits, CBD-Infused Products, and Home Healthcare markets”. Why? Because the company just put out an official corporate communication stating that it just turned profitable on an EBITDA basis and would post results reflecting that status at the end of this quarter – we would expect the data to drop next month.
To explain the situation, the company’s CEO, Terry Williams, had a very interesting statement: “Our home healthcare segment has been driving recent growth during our marketing and distribution transition for our CBD product line and ahead of our planned distribution expansion for Besado Tequila in October. In other words, this is a three engine plane that has basically been flying on one engine over recent months. But that’s all about to change. Q3 is the turning point. Q4 is going to be the real story.”
That about says it all: Not only has the company gotten to EBITDA profitability, but it’s guiding investors to expect even more promising data the following quarter to close out the year.
The release went on to paint a picture that looks quite interesting. The big idea is this: the company has been seeing success on the strength of its home healthcare business. But it also has thriving segments in CBD and spirits. Apparently, we can expect both of those other segments to begin to powerfully contribute to results over coming weeks and going forward.
In other words, there’s an excess of promise packed into this sub-penny story, and it deserves a closer look, particularly given the very high hopes in place for the company over coming months.