Digital signage provider RMG Networks Holding Corporation (NASDAQ:RMGN) is a puzzle. RMG shares jumped as much as 150% today, before trimming back some gains to trade up about 65%. Why? Your guess is as good as anybody else’s. There hasn’t been a word’s worth of news coming out of RMG since its last earnings report.
In 3Q17, RMG lost $1.9 millón or ($0.19) per share on an 8% decline y/y in revenue to $8.8 million. Product sales declined 15% y/y to $3.5 million. The cash position at 3Q was $1.6 million and it had borrowed $700,000 under its credit facility with another $3.4 million available. It also extended its credit line with Silicon Valley Bank through 1Q19 with a floating interest rates equal to the greater of 4.5% or prime plus 1.75% or 2.75% depending on certain conditions. Adjusted EBITDA was a negative $875.000 in the quarter.
Looking forward, the company guided towards revenue for the full year in a range from flat to -3%. The company expects software sales to decline over several quarters including 2018.
Roth Capital analyst William Gibson recently wrote, “Ever since we initiated coverage, there was always the promise of large increases in EBITDA even though the growth kept pushing out. With the adoption of a SaaS-based business model, that promise is not longer in striking distance.”
Gibson rates RMGN shares a Neutral with a $1.00 price target, which implies a significant downside of nearly 40% from current levels.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst William Gibson has a yearly average return of -11.2% and a 37% success rate. Gibson has a -44.1% average return when recommending RMGN, and is ranked #4601 out of 4739 analysts.