SANUWAVE Health (OTC: SNWV) shares are in rally mode, trading higher by more than 42% intraday on Friday before settling back to a gain of more than 28% for the week. Notably, the volume traded at roughly twice its average pace.
Investors likely responded to two things in particular. First, positive editorial insight pointing toward Lake Street Capital’s coverage of the stock is catching attention. The second interest may have come from an SEC filing made on Friday by SANUWAVE that calls for a Special Meeting on December 30, 2020, to vote on two proposed amendments to its articles. Those agenda items have long been rumored to coincide with the company’s planned listing to a more senior NASDAQ exchange.
As noted, two proposals are in play. First, an increase in the authorized share count for the company. Second, the company is asking for approval to effect a reverse stock split at an exchange rate of 1:50. The interesting part of each proposal is that the company has noted an increase in A/S, and a proposed stock split, would happen only when its uplist is imminent. Shareholders had already approved a reverse split during a July 23, 2020 meeting, but management did not make the change. This time, there is speculation that they may act on a new authorization to secure their spot on the NASDAQ. Thus, the timing of the filing may have rightfully earned investor’s attention.
Both proposals are being viewed as bullish, and the reverse split, when associated with an uplisting, is a far different action than an uplisting for survival. SANUWAVE, for those not following along, set record-setting Q3 revenues. In fact, they were higher by 895% compared to the same period last year.
Moreover, analyst and company guidance call for a second set of consecutive quarterly records for the period ending December 30, 2020. Full-year guidance is also bullish, expecting revenues to increase by more than 415%, following its near-term Q4 report that anticipates revenues to jump by triple-digit percentages in year over year comparisons.
Clues to A New Year’s NASDAQ Listing
Investors wanting to understand the reasoning behind the bullish sentiment are encouraged to read the recently published editorial insights about SANUWAVE. Those presentations allude to Lake Street Capital’s bullish thesis expecting to a substantial share price rally from current levels (even after the recent gains) as well as their expectations for revenues to surge to upwards of $25 million in 2021.
Lake Street models propose that SANUWAVE’s position in the $11 billion diabetic foot ulcer treatment market may have cleared all of the high hurdles for entry. Moreover, they note that its acquisition of Celularity’s UltraMIST® ultrasound healing device combined with its own dermaPACE® healing therapy device make the company a best-in-class treatment option for physicians.
The coverage available offers a road-map as to how and why SANUWAVE is positioned to become a market leader in the diabetic chronic wound-care market. That analysis highlights recent acquisitions, market potential, a move into Latin markets, more expected record-setting financial performance, and the company’s most coveted near-term prize- the NASDAQ listing.
The consensus among investors is that the call for a Special Meeting provides the final clues to what can cap off a transformational year for the company and boost its shares to a more senior market that can immediately attract institutional investment and new analyst coverage.
Here’s why each proposal, and its respective approvals, are important.
Effecting A R/S Of its Common Stock
Ordinarily, investors run from the sound of the words “reverse stock split.” However, in SANUWAVE’s case, management has been transparent that the move will only occur in association with its NASDAQ uplist. Remember, shareholders had already approved an R/S last July, and management didn’t effect the change. Their reluctance to do so showed their commitment to preserving shareholder value and may have revealed a clue as to why this new proposal is back on the table. Evidence suggests that the timing is ripe for its imminent upgrade. And the R/S serves that important premise.
In its filing, SANUWAVE said it submitted the R/S proposal to its stockholders with the primary and obvious intent of increasing the market price of its common stock. Doing so will enhance liquidity and make its shares more attractive to a broader list of investors. Also, having record-setting revenues not only support and justify the exchange, but also position the company to attract a more comprehensive range of investors, including a larger class of institutional investors, professional investors, and other members of the investing public.
The split would also help clear the internal policies that many brokerage houses and institutional investors have in place that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Remember, institutional money is behind the company’s recent transformational acquisitions, and their interest in participating in future growth is likely. Thus, the proposed change in share structure, which does not change a shareholder’s equity position, can generate meaningful new interest in the stock.
And, with an after the event O/S count of only 9.3 million, supply and demand for the shares can help bolster the price. Moreover, a NASDAQ uplist is not a “sell the news” event. Thus, January may indeed be an exciting time at SANUWAVE.
Increase In Authorized Shares To Drive Growth
An increase to its authorized share treasury is also bullish in most investors’ views since it provides the company with additional flexibility to issue common stock for various general corporate purposes. It’s not an uncommon practice for companies experiencing significant growth to warrant an increase in A/S and especially not unusual after making a company-changing acquisition. SANUWAVE just did.
Further, an increase in treasury shares is only dilutive after they are issued. So, investors consider it an additional tool in the war chest. Flexibility allows for stock splits, stock dividends, raising capital, and can act as currency for further acquisitions and licensing agreements. Although the company noted that it currently does not have any definitive plans, arrangements, or commitments concerning the issuance of the additional shares of common stock, from an investor’s perspective, having available stock is a significant asset for growth.
Both measures come with Board support, and each should be viewed as positive proposals as the company is clearly on a path to extend its market presence.
Recap Of Record-Setting Financials
Recent performance justifies the two proposals. In Q3, the company posted a record-setting quarter with revenues surging by more than 895% compared to the same quarter last year. Guidance for Q4 calls for roughly $3 million in new revenues, which would contribute to a more than 415% gain in year-over-year revenues. That’s just for starters.
As part of the due diligence, investors learned that UltraMIST® delivered more than $15 million in sales last year and provided more than $4 million in EBITDA earnings. Also, the UltraMIST® revenues are immediately accretive and are expected to push the company closer to bottom-line profitability or positive cash-flow status relatively quick. The analyst guidance for full-year revenues of $25 million in 2021 supports their bullish premise.
And while those estimates call for serious growth, estimates are likely to increase with its 100 person sales team now representing the company’s FDA-cleared DermaPACE®. When added with UltraMIST®, the two can combine to deliver best-in-class painless treatment alternatives to patients with chronic diabetic wounds. Undoubtedly, the value of both devices together played a role in finalizing the UltraMIST acquisition, and its strength lay in its ability to deliver dual therapeutic value that is quick and virtually painless. They also bring physicians an effective means to treat diabetic wound-care patients along the entire continuum of care. That factor alone could be a defining advantage over competing treatments.
Sum Of The Parts
Clearly, investors responded well to the company’s filing and are likely positioning ahead of what they think will be a surge in growth during 2021. Record-setting revenues, coupled with a low share count and public float, can be a recipe for near term growth. And while the call for a Special Meeting may only serve up clues to what’s in store, investors are apparently taking a bullish stance.
Thus, if the planned uplist happens in January, or even soon before or after, the response could add potentially exponential value. That news would likely coincide with expected and consecutive record revenues, an expansion into global markets, and a considerable reduction in available shares. By any measure, the sum of those parts may equate to a far higher valuation than current prices reflect.
Now, perhaps it’s more understandable why the stock is in rally mode.
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