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By George Leong, B.Comm. Published : December 4, 2020
Park City Group, Inc Is a Play on Supply Chains Improving
Global supply chains have been under attack and made worse with the COVID-19 pandemic plunging the world economy into disarray. But despite what you may have heard, existing supply chains will largely stay in place. There could be a few relocations here and there, but global integration is not going away anytime soon.
A battered micro-cap play on supply-chain logistics with a compelling risk/reward ratio is Park City Group, Inc. (NASDAQ:PCYG).
Through its wholly owned ReposiTrak, Inc., the company provides a supply-chain management platform used for compliance and risk, supply chains, and e-commerce. Its clients include retailers, wholesalers, and suppliers.
The last two years, with the U.S.-China trade war, have been difficult for Park City Group, Inc. but things are starting to look better. Revenues are growing and the company is profitable and generates free cash flow.
Park City Group stock is down 10% this year and 27% below its 52-week high of $622.00 in June 2020.
The PCYG stock chart shows a breakdown from $17.00 in June 2017 and the continuance of the downward channel.
Park City Group stock needs to find some support in order to launch a rally back toward upper resistance at $8.00 and $10.00.
Chart courtesy of StockCharts.com
Improving Fundamentals Bode Well for PCYG Stock
Park City Group’s revenues looked good from fiscal 2016 (ending in June) to fiscal 2018, prior to two straight years of contraction.
| Fiscal Year | Revenue (Millions) | Growth |
| 2016 | $14.0 | N/A |
| 2017 | $18.9 | 2.7% |
| 2018 | $22.0 | 16.4% |
| 2019 | $21.2 | -3.9% |
| 2020 | $20.0 | -5.4% |
(Source: “Park City Group Inc.” MarketWatch, last accessed December 3, 2020.)
My view is that Park City Group stock could begin to rally as the domestic and global economies recover in 2021.
Analysts expect the company’s revenues to rise 3.9% to $20.8 million in fiscal 2021, followed by 10.8% to $23.1 million in fiscal 2022. The expected growth rates are not great, but much will depend on the renewal of the global economy. (Source: “Park City Group, Inc. (PCYG),” Yahoo! Finance, last accessed December 3, 2020.)
For such a small company, Park City Group has consistently reported positive earnings before interest, taxes, depreciation, and amortization (EBITDA); profitability on both a generally accepted accounting principles (GAAP) and adjusted earnings-per-share (EPS) basis; and positive free cash flow.
| Fiscal Year | EBITDA (Millions) | Growth |
| 2016 | $1.2 | N/A |
| 2017 | $4.4 | 267.2% |
| 2018 | $4.2 | -5.4% |
| 2019 | $4.6 | 10.6% |
| 2020 | $2.4 | -47.8% |
(Source: MarketWatch, op. cit.)
| Fiscal Year | GAAP Diluted EPS | Growth |
| 2016 | -$0.003 | N/A |
| 2017 | $0.15 | 4,635.5% |
| 2018 | $0.14 | -6.8% |
| 2019 | $0.16 | 16.5% |
| 2020 | $0.05 | -68.9% |
(Source: MarketWatch, op. cit.)
An encouraging sign is the upward revisions in adjusted earnings estimates.
The company is expected to report an adjusted $0.10 per diluted share in fiscal 2021, down from $0.13 in fiscal 2020, and follow that with $0.17 per diluted share in fiscal 2022. (Source: Yahoo! Finance, op. cit.)
Park City Group, Inc. delivered five consecutive years of positive free cash flow, including growth in the last three years, to a record $3.6 million in fiscal 2020.
| Fiscal Year | Free Cash Flow (Millions) | Growth |
| 2016 | $0.4 | N/A |
| 2017 | $0.3 | -29.0% |
| 2018 | $2.0 | 559.1% |
| 2019 | $3.1 | 58.5% |
| 2020 | $3.6 | 15.9% |
(Source: MarketWatch, op. cit.)
The company’s balance sheet has strong working capital, with debt of $7.2 million and cash of $21.2 million. (Source: Yahoo! Finance, op. cit.)
Analyst Take
In my view, it may be an opportune time for investors to consider Park City Group stock before the global economy rejuvenates further.
The upside potential for PCYG stock far exceeds the downside risk, providing investors with an attractive risk/reward proposition.
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