Dropcar Inc (NASDAQ: DCAR) is hitting the tape all over the web today, and for good reason. The company is up around 15% at the time of writing this article as investors pour in. With the gains in mind, many are wondering if now is the time to get involved.
After digging in, I’ve come to the conclusing that while an investment in DCAR at this stage may come with some risk, it could also prove to be an incredibly lucrative move. Here’s how I came to that conclusion:
What Is DropCar
DropCar is a tech company that has a goal of powering next generating mobility by bringing automotive based products and services to the world’s front door. The company’s claim to fame is its core Mobility Cloud platform and driver network.
This product offering helps fleet owners, dealers, OEMs, retailers, and shared mobility companies manage their logistics and launch new services. The company’s platform also helps busy millennials reduce the cost of traditional transportation, providing vehicles for use at the tap of a button.
DCAR Is Producing Strong Revenue Growth
While DropCar is a relatively small company at the moment, it is experiencing strong growth in revenue. This can be seen by taking a look at the company’s most recent earnings report, issued on April 3, 2019.
In the report, the company provided a breakdown of revenue growth by segment, and the results proved to be impressive. Here’s the revenue data that DCAR provided:
- B2B Revenue – In terms of business to business revenue, the company generated $348,000 in the fourth quarter. That figure was well ahead of the $151,000 the company generated in the B2B segment in the fourth quarter of 2017. Perhaps more importantly, the figure represented 130% quarter over quarter growth from $197,000 in the third quarter of 2018.
- Will – The “Will” on-demand service segment generated $112,000 in the fourth quarter. That figure also showed strong growth over the $75,000 produced the year before and 48% growth on a quarter over quarter basis.
- Shelf-Park – Finally, the company’s new “Shelf-Park” service that replaced its “Steve” service generated $665,000 in the fourth quarter. Because this service is new, there is no historic data to compare it to.
- Total Revenue – Total revenue for the quarter came in at $1.122 million. This figure saw a decline from $1.488 million in the fourth quarter of 2017. However, the discontinuation of high-cost services played a role here.
While total revenue was down year over year, this was the result of a high-cost service being discontinued. Sure, that creates pain in revenue, but for the bottom line it’s good news. All in all, with strong revenue growth across all segments, DCAR is an interesting play.
The Big Play Here: Potential Partnerships
In the press release for the earnings report above, Spencer Richardson, CEO at DCAR started the discussion with the following paragraph:
We believe that between the significant improvements we have made to our operating business and overall cash position, we are well-positioned to continue aggressively exploring additional strategic opportunities to maximize shareholder value including, but not limited to, business combinations.
This is overwhelmingly important as it reminded investors of the strategic options exploration efforts that the company announced on March 8, 2019. In the release, the company informed investors that it has initiated a process to evaluate strategic opportunities, aimed at maximizing shareholder value.
Importantly, in the release, DropCar said that “the process will consider a range of potential strategic opportunities, including, but not limited to, business combinations.” At the end of the day, the company is looking for a partner to share in the burden associated with the growth of its services. This could yield a couple of highly positive outcomes:
- A Potential Acquisition – At the end of the day, there are few transactions that increase shareholder value like acquisitions at a premium. Considering the company’s announcement, it would be surprising if DCAR wasn’t looking for potential suitors.
- Merger – The company may also end up merging with another. Of course, mergers provide a higher level of strength and stability, further providing value to investors.
It’s also worth mentioning that DCAR has quite a bit to offer a suitor. In particular, Uber and Lyft could benefit from acquiring the service as it is already being used by many of the drivers that work for these companies. Moreover, large dealerships, rental agencies and other potential suitors are out there.
Moreover, with a market cap of below $10 million, this could prove to be an accretive acquisition that comes at a minimal price to a large company, bringing increased value to its investors. All in all, an acquisition would be good for everyone involved.
Consider The Risks
Any time an investment is made, a risk is taken. This is especially the case with micro-cap and nano-cap stocks. When it comes to DropCar, I believe that the most pressing risks to consider include:
- A Reliance On The Investing Community – At the moment, DCAR is operating at a loss. As a result, it is heavily reliant on the investing community. To get an idea of what this means, just look at the fourth quarter and full year earnings report. In the report, the company said that net losses came to $6,633,958 for the quarter, but it only had current assets in the amount of $4.927 million. Considering this, the company is going to need to do something to bring more funds in relatively soon.
- Cost Cutting Needs To Continue – So far, the cost cutting measures taken by the company have been working out well, but it’s not perfect. In fact, in the fourth quarter, the company generated net revenue of $1,122,461. While cost of revenue has decreased substantially, the cost of revenue in the quarter came in at $1,250,090, leading to a gross loss of $127,629. It’s never good to operate at a loss, and should cost cutting not continue, we could see further pain.
- High Volatility – Finally, as a penny stock, DropCar is known to come with high volatility. So, short term investments could be hard to pin down. If you’re going to invest here, you must be willing to ride the volatile waves and hold it until an acquisition or profitability takes place.
Investing in penny stocks can be risky business. However, many of the mainstream, blue chip stocks of today started out as penny stocks. The key is finding the companies that are actually doing something. They have products, they are generating revenue, and they are consistently working to improve shareholder value.
It’s these types of companies with a strong product, low market capitalization, and who are early in the game that become great targets for acquisitions. Moreover, these companies tend to grow over time as their work to build their brands and shareholder value pays off.
All in all, I believe that DCAR is one of these companies. With cost cutting measures proving successful, revenue growing, and active work to find potential partners or suitors, I believe that the stock represents a compelling opportunity!