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TRKA Stock: A 400% Increase in Troika’s Outstanding Shares Changes Everything

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Short-term stock shares Troika Media Group (NASDAQ:TRKA) collapsed 40% on March 7 after the company released its latest financial report.

It was bad.

Although the company posted robust revenue of $187.9 million, profits were well below my most conservative estimates. Adjusted EBITDA barely hit $5 million in the six months ended December 2022, less than half the rate needed to hit its original target of $27 million. Free movement of capital only $1.9 million for the six months.

According to a two-step discounted cash flow (DCF) analysis, earning such low numbers pegs Troika Media Group’s equity at around $60 million, a far cry from my original target of $300 million. You will see later that I am cutting my target price to reflect this new reality.

The big question, however, is this:

How many shares does Troika now have outstanding?

Because This will be the difference between the TRKA stock at 54 cents and the TRKA stock at $1.84.

Where is the value of Troika

Troika Media is a frustrating and opaque company. The company deals with corporate clients, which makes sales cycles long and lumpy. And unless you’re personally in the market for customer acquisition services, you tend to learn about the health of these companies by looking in the rearview mirror. That’s why even big cybersecurity companies like Z-scale (NASDAQ:SZ) may increase or decrease by 10% or more after the earnings announcement; even the highest paid stock analysts on Wall Street often have no idea of ​​the state of affairs.

Troika’s latest annual report now suggests that its business is not as healthy as initially assumed. Assuming its free cash flow only reaches $6 million per year by 2025, the justified value of the business drops to around $170 million.

Then things get worse.

In its latest report, Troika Media said it now has 344 million shares outstanding, up dramatically from the 64 million reported in November 2022.

This means that its main creditor, Blue Torch Funding, could have exercised its 266,666,640 warrants between December 2022 and March 2023 without filing change of ownership documents with the SEC. This would have raised around $68 million for Troika, but at some of the worst possible valuations imaginable…and possibly give Blue Torch a chance to sell its shares on the open market. (The company’s announcement that it was withdrawing its S-1 registration to issue 200 million new shares would also have provided cover).

This is an action that I had not anticipated. And that completely shatters my 1000% upside thesis for TRKA stock..

  • Before. Deduct $50 million of net debt from the enterprise value of $170 million and divide by 64 million shares = $1.84
  • After. $170 million in enterprise value plus $17 million in cash, divided by 344 million shares = 54 cents

What is the TRKA share worth?

Just a few weeks ago, I was under the impression that Troika was worth around $4.70 per share. Strong third quarter numbers and relatively aligned stakeholder interests meant the stock had a huge upside.

Fast forward to today, and everything has changed. Not only did Troika disappoint with its latest earnings (dropping its valuation to $1.84). One of its major stakeholders may have exercised warrants without informing outside shareholders. This would reduce the company’s fair value to 54 cents and eliminate most of the upside. (Emails to the company’s investor relations department and chief financial officer went unanswered).

It may be a big misunderstanding. Troika’s auditors might have accidentally included unexercised warrants in their stock count. This would explain why the company did not report such a significant change to the SEC.

Until the management of Troika resolves the situation, I can’t recommend any position in the TRKA stock. Not even as a speculative game.

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As of the date of publication, Tom Yeung did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Tom Yeung is a market analyst and portfolio manager of Omnia Portfolio, InvestorPlace’s highest subscription. He is the former editor of Tom Yeung’s Profit & Protection, a free e-newsletter about investing for making profit in good times and protecting gains in bad times.


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