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NightCulture (NGHT): a divergence of price and results

My smallest position, at 4% of my portfolio, is a company called NightCulture (NGHT) which produces electronic dance music concerts in Texas. That is a weird little niche, no?

This was an idea I picked up from iHub user otcbargains on his Undervalued Penny Plays message board. The investment is down 18% since I bought at $0.045 in mid-September, but the thesis has not changed at all.

Basically, NightCulture’s financial results have been steadily improving over the past couple of years, while its stock price has retreated and plateaued over the same timespan. Results have continued to improve in 2014, but you will not see that reflected in the price.

 

NGHT - Historical Results

Source: Google Finance… Fiscal years, ending Dec 31

 

NGHT - Stock Chart

 (Note the pop to $0.10+ twice in the past year — indicating a propensity to run.)

 

It is imperative that anyone investing in NightCulture read Matt Finston’s October 9 article: NGHT’s Q3 Should Show 50% Yoy Growth, as well as his earlier NGHT articles on Seeking Alpha. Matt predicted Q2 revenues to within 1% and his work on NGHT has been a great example of terrific “amateur” analysis. As far as I know, no analysts cover NGHT, a $2.4M market cap company.

The Something Wicked Festival

The Something Wicked Festival (source: Facebook)

NightCulture’s premier event every year is the 2-day festival Something Wicked, which takes place in Q4, around Halloween.

On a funny side note (funny to me, at least), this festival is held at Sam Houston Race Park, which is jointly owned by Penn National Gaming (PENN) and Maxxam Inc. (MAXX). Maxxam is a highly illiquid stock that was profiled by Nate Tobik in January 2014, in an article that I found highly intriguing: Maxxam, unbelievably cheap at 27% of BV and potentially 2x earnings. But that is nothing more than an “odd” connection between two microcaps.

Anyway, I have not gone into much detail on NGHT here, but I still wanted to put the idea out. I did not do as deep an analysis as I would normally do before I took my position, as I liked the juxtaposition of a sagging/unreactive stock price with improving results and thought Finston had a good bead on the company.

I believe that the bear case revolves around NGHT’s convertible debt, the potential for drug-related deaths at shows, and just the fact that this is a tiny publicly traded company. I should do more research into the convertible debt but have figured any potential dilution was outweighed by the rapid growth and cheap price of the stock here.

As always, time will tell if this was a good buy, and microcaps in particular can throw one for a loop at anytime (or burst upwards).

If I have any further insights, I’ll post a follow-up article.

 

Disclosure: NGHT is $0.0368 at the time of this writing and I am long.

Nat Hunt

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