TOP IDEAS: Stock is up 70% and RDM Corp's (TSX: RC) business is still gathering momentum Investorfile target reached.
Note: Investorfile's share price accumulation target of $1.35 for RDM Corporation was reached on November 22, 2012. For the record, we do not revise share price targets for our Top Ideas Small Cap Value Stocks. We have positioned our blog to be one of the first providers of a pragmatic perspective of a small cap company stock's potential worth, where there may be uncovered value that has been largely overlooked by the investment community.
Last week RDM Corporation (TSX: RC - $1.47) stock raced past our price target. In January 2012, we recommended that small cap value investors should accumulate RDM stock up to a price of a $1.35 per share. The Company's shares have increased in value by over 70% since our initial posting (See: RDM Corporation: Cash-rich small cap turnaround, offers value and opportunity).
No longer overlooked by the investment community, RDM's stock price (and liquidity) is gaining upward momentum. More importantly, the Company's business operation also has momentum.
RDM has pioneered a payment processing system to capture cheque images for electronic transmission and deposit to financial institutions (Remote Deposit Capture "RDC), thus eliminating the physical handling of paper cheques. US banks and their customers are increasingly deploying RDC technology and, in particular, RDM's Image and Transaction Management Systems ("ITMS®).
At each ITMS® site, RDM earns reoccurring revenue streams for cheque images processed for payment. The Company reported that they added over 6,500 ITMS® user sites in fiscal 2012, for a total of 28,500 - an increase of 30%. The outlook for more ITMS® site deployments is buoyant. RDM just recently reported that several major new business groups are rolling out ITMS® sites in conjunction with their banks. The pipeline of opportunities remains strong for fiscal 2013, the Company has said.
The Company earns high margins (64%) on its reoccurring revenues streams, which made up 57% of RDM's $20.4 million of revenues reported for fiscal 2012. The profitability, associated with the reoccurring revenues combined with the re-emergence of the Company's imaging product hardware sales (See: Growth returning to cash-rich RDM Corporation), accounts for RDM's turnaround year, earning $0.08 per share in profits and generating $4.2 million in cash from operations.
We feel RDM's business is still at the beginning of an expansion cycle, leading to higher earnings and therefore higher stock prices when the Company reports future financial results. But the big upside still exists given that RDM has about $19 million (0.90/share) in cash and no debt. An acquisition, takeover or future dividends are shareholder value-enhancing events, all of which are still possible.
For RDM, 2013 has already started and so has the stock's momentum.
RDM has approximately 21.2 million shares outstanding.
RDM Corporation website: www.rdmcorp.com.
Author's Ownership Position TSX: RC - Long
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The author of this article has acquired and may trade shares of RDM Corporation through open market transactions and for investment purposes only.