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Summary
· GTX is the most undervalued company I have ever encountered, trading at an 85% discount to fair value.
· GTX is the best pure play investment in the wearable tech sector.
· The company’s lead product should capture a large portion of an $8.6 billion market.
· The first production run completely sold out with preorders and this was accomplished with no advertising.
· GTX is the CEO’s 7th startup, and all of his previous companies achieved profitability.
· GTX management is so bullish that many have chosen to take most of their salary in stock.
· GTX’s 80 patents are worth more than twice the company’s current valuation.
· The company should generate significant year-over-year revenue growth this quarter.
· Strong demand for the company’s products should produce profitability beginning in Q2 or Q3 of this year.
With quality companies, early investors often reap the greatest rewards. I distinctly remember when Apple (AAPL), was trading for $.92, split-adjusted. Apple stock recently rose above $130 a share providing early investors with more than 100X return. Anyone who invested $10,000 back then would be a millionaire today.
After over 300 hours of due diligence, I have discovered a similar opportunity with wearable tech company, GTX Corp (GTXO). If this company continues to execute, which I believe it will, investors could ultimately realize 100X returns. But GTX is so undervalued right now that investors could capture near-term 6X returns as Wall Street becomes aware of this company’s fundamentals and pushes the share price towards fair valuation.
Wearable tech could be the hottest sector for 2015
The wearable tech sector has been on fire and investing early could provide tremendous returns for investors. Investors began to take notice when Facebook paid $2 billion for Oculus VR. Early Oculus VR investors invariably did very well.
According to Juniper research, revenue from this sector is expected to grow 1000% in the next 5 years. Credit Suisse believes this will be a $50 billion market in 3 to 5 years.
When wearable tech companies Fitbit and Jawbone IPO later this year, the demand for wearable tech investments could go parabolic. With very few wearable tech companies to invest in, GTX shares could trade at a premium.
Right now the only wearable tech investments include tech giants like Apple, Google (GOOG), Samsung, and Facebook (FB), but the problem is, these are not pure play wearable tech investments.
And then we have VC backed private companies which include MC10, mCube, Misfit, Quanttus, and Zepp. Some of these companies will most likely go public, possibly this year, but as of now, we cannot invest in these companies.
That’s what makes GTX so attractive, not only does it appear to have the best product on the market, but in my opinion it’s the best pure play wearable tech investment.
Last year’s hot sector was security, where companies like Digital Ally (DGLY) provided investors with 10X returns when it went from $3 to over $30 in just a few weeks.
I expect GTX to perform even better because the company has 80 patents covering an $8.6 billion market and is currently trading at an 85% discount to fair value. The key to this investment thesis is GTX’s sustainable competitive advantage with a best in class product.
GTX is providing the best solution to an unsolved problem
Currently over 100 million people require oversight due to various forms of memory impairment caused by Alzheimer’s, dementia, autism and traumatic brain injury. That number is expected to increase to 277 million by 2050.
One of the biggest problems with this population is that they go wandering, get lost, and family members and caregivers have no reliable way to find them. The police are called and a search ensues. Each police search costs on average about $10,000, and can go up to over $100,000. It just depends on how quickly the person is located. The emotional and economic impact are substantial, and up to now there hasn’t been a reliable solution for locating these memory impaired individuals.
According to the 2013 World Alzheimer’s Report:
· 60% will become lost at least once.
· 70% of those will become lost 3 or more times.
· 46% of those not found within 24 hours may die.
With 46% facing death if not found within 24 hours, the need to quickly find these individuals is evident. GTX has developed the best solution that reliably allows caregivers, police departments and family members to immediately locate these individuals.
GTX’s patented GPS SmartSoles features a miniaturized GPS tracking chip embedded in insoles, which are inserted into a wearer’s shoe. SmartSoles send a signal to the central GTX monitoring website showing the wearer’s exact location, using a combination of satellite and cellular technology.
After you activate your tracking account, you will be able to monitor the person wearing SmartSoles right from your computer, tablet, or smart phone. In other words, the wanderer will never be lost because you will always know exactly where they are.
One of the biggest advantages is SmartSoles allows the caregivers to relax. Without this technology, caregivers literally need to keep an eye on memory impaired individuals 24 hours a day. My neighbor’s wife has Alzheimer’s, and the only way he can leave the house for even 5 minutes, is to hire someone to watch over his wife while he is gone.
Why SmartSoles provides the best solution
With today’s technology, there are only 3 options for monitoring and locating memory impaired individuals:
Number 1: up to now the most popular method uses a small GPS device that is carried in the patient’s pocket or purse, or on a lanyard around their neck. This is a great solution, when it’s actually on the patient.
The problem is, many people forget to take their monitoring devices before they go wandering, or in some cases purposely remove them. This population is often tech adverse and wants no part of carrying an electronic sensor. This solution sort of works some of the time.
Number 2: the 2nd most popular method uses a GPS bracelet or anklet. The problem is, most individuals rebel strongly against the stigma attached to these devices, and often try to remove or destroy them. Nobody wants their friends or family to see them wearing an “Alzheimer’s Bracelet”.
Another problem is that Alzheimer’s and autistic individuals in particular are often paranoid, and do not like any kind of change, especially a foreign device being attached to their bodies. Getting them to wear it once can be a challenge, and having in on them consistently is almost impossible. But for the few who are willing to wear these devices, they are very effective.
Number 3: the 3rd method, which should soon become the market leader, involves GTX’s SmartSoles, a GPS tracking device is hidden in the wearer’s shoe. SmartSoles are effective because the wearer doesn’t know they are there. Equally important, memory impaired individuals are almost always wearing shoes when they go wandering. It’s automatic, something ingrained since childhood. This is by far the most effective solution on the market today.
Everyone I spoke with believes SmartSoles will become the market leader
I spent a week speaking with customers, distributors, opinion leaders, and assisted living facility executives. They all evaluated SmartSoles, and everyone made it clear that SmartSoles are badly needed and will replace most of the old school anklets, bracelets, and portable GPS and RFID devices. My impression was that there is significant excitement and demand for this new product and for that reason I believe sales will ramp up aggressively.
One of the most common themes in these conversations was that SmartSoles provide peace of mind for caregivers and patients. Both could relax, because there was no longer the fear of someone becoming lost.
When you’re living with a memory impaired individual, you can’t take your eye off them for even one minute, because they can walk out the door at any time, day or night and become lost. With SmartSoles you can relax and go about your normal life. The people I spoke with who are currently using SmartSoles made it clear how much this product had changed their lives. It was inspiring to hear these stories.
SmartSoles reduces costs and improve quality of life
One of the things I learned by speaking with executives who managed senior facilities, was that SmartSoles will allow seniors to live at home for much longer before needing to move into a facility. If a caregiver can prevent someone from wandering by using SmartSoles, the need to move to a facility could be delayed for years. Not only does this provide positive economic impact for families, because facilities cost up to $8000 per month, but it greatly improves the quality of life for the entire family.
I believe sales will ramp up quickly in this sector, because most families would much rather spend $30 a month for SmartSoles, and keep the family member at home, as opposed to spending $8000 per month, and having him or her committed to a facility. ($30 a month is what consumer’s pay, which is higher than the $20 per month average which includes wholesale and international distributor rates.)
SmartSoles reduces guilt and stress for patients
It’s obvious how this product helps caregivers, police departments, and assisted living facilities, but what really surprised me was that Alzheimer’s and dementia sufferers appreciate the product as well. I spoke with one dementia patient, and he said SmartSoles relieved a lot of the guilt that he felt, because he was totally aware of the burden he was placing on his wife and kids because they always had to keep an eye on him. He appreciated how SmartSoles allowed his family members to relax, which in turn allowed him to relax.
SmartSoles locate patients immediately
I spoke with one couple whose mother moved to an assisted living facility because her wandering was making it impossible to keep her at home. But after a very short time at the facility, she simply walked out the front door and became lost.
After searching for hours no one could locate her. Finally, a stranger found her lying on the ground, in 20° weather, near death. She recovered, but this event was traumatic to everyone involved. This could have been completely prevented with SmartSoles because once she walked out the front door, she could have been located within minutes.
NBC highlights GTX’s technology
NBC recently published a news story which focused on one of the organizations that are currently demoing SmartSoles. The Jefferson Board for Aging, or JABA is the first of 600 area agencies to pilot GTX’s SmartSoles. This is a significant development for GTX because even if only half of these 600 agencies become customers that would generate significant revenue for GTX.
But the most important information in this NBC story is that JABA employees stated that SmartSoles are better than any technology they’ve seen in the past. This is a noteworthy statement because not only does it reinforce my point about SmartSoles being the best technology available but it also indicates that JABA could become a large GTX customer.
GTX technology validated by CES
GTX was chosen to be interviewed for the highly sought-after 2015 Internet of Things webcast produced at CES. This honor positions GTX as one of the top innovators in the Technology/Internet space. Most tech companies would give anything for this opportunity and the fact that GTX was chosen is a strong validation for the company’s technology because only the top tech companies get to participate in this event.
CES (International Consumer Electronics Show) showcases more than 3500 high-tech companies and generally receives over 150,000 attendees from more than 140 countries. This is an important conference, because it attracts the world’s business leaders and pioneering thinkers to a forum where the industry’s most relevant issues are addressed. This is a huge coup for GTX.
I recommend watching the CES video, because it will give you a good sense of GTX’s CEO, and also the video opens with a story about someone who is using SmartSoles. It’s always good to hear the perspective of someone who is actually using the product.
GTX is a finalist for the Connected World Awards
The Connected World Awards honor companies that have solved critical problems for the Internet of Things. Winners are chosen based on innovation, market size and competitive advantage. GTX excels in all these areas.
Hundreds of companies compete for these awards, but only the best of the best are chosen as finalists. The fact that GTX was chosen, along with tech giants like AT&T, Verizon, and Joy Global, is just one more validation of GTX’s technology.
How big is the market?
With 100 million people worldwide requiring oversight, the market is large. But not everyone in the world can afford SmartSoles, so the actual addressable market is around 36 million people. If GTX is able to receive Medicare and insurance reimbursement, which I believe it will, this 36 million number could more than double.
GTX charges on average $20 per month for monitoring. This is a recurring fee with margins up to 75%, so this will be a powerful cash generating instrument for GTX. With 36 million potential customers, the total addressable market for monitoring is $8.6 billion annually. This is recurring revenue that will grow as the market grows from the current 100 million people to 277 million people.
Hardware sales would add another $10.8 billion, but hardware represents one time sales, not recurring, so as a profit center, this will be less significant than the monitoring revenue. For the sake of keeping estimates conservative, I’m going to base GTX’s business model only on the recurring monitoring revenue, and will not include hardware revenue even though hardware revenue will more than double the company’s top line revenue.
How much market share could GTX capture?
Given that GTX appears to have the most effective solution, the company could ultimately capture a large portion of the $8.6 billion market, assuming a new and superior product doesn’t enter the market. But it will take time to reach that level of penetration, and GTX needs to grow at a reasonable rate so as not to introduce challenges associated with hyper growth.
Here are 3 projections of potential market penetration based on 250 million shares outstanding. As of the last filing, there were about 200 million shares outstanding and I am factoring in an additional 50 million shares to cover the recently announced $167,000 financing, and the debt conversion. There could be a little less or a little more than 250 million fully diluted shares outstanding today, so this is an estimate.
I am basing GTX’s valuation calculations on a low 2X revenue multiple. In other words, if the company had $500 million in revenue, a conservative valuation for the company would be 2 times revenue or $1 billion. In a buyout, a company with rapid growth and a sustainable competitive advantage could receive a 4X to 10X multiple, so 2X is rock-bottom.
Just to make the point about the value of GTX’s sustainable competitive advantage; Coca-Cola, with its lethargic 5% growth rate is given a multiple of 4X, solely based on the company’s sustainable competitive advantage. Many will argue that GTX should be given a multiple of at least 4X, and I agree, but I’m using 2X to estimate the most conservative valuations.
Here’s a summary of GTX valuation estimates:
· Worst-case: GTX captures 3% of the market: annual revenue: $258 million. GTX future valuation: $516 million. Shareprice: $2.06.
· Most probable: GTX captures 10% of the market: annual revenue $860 million. GTX future valuation: $1.72 billion. Shareprice: $6.88.
· Best case: GTX captures 30% of the market: annual revenue $2.58 billion. GTX future valuation: $5.16 billion. Shareprice: $20.64.
Keep in mind that these are future values, and present value should only reflect a fraction of future value. Net present value calculations usually give us a present value that represents about 25% of future value or a 75% discount. In other words, if a company would be worth $1 billion in 5 years, the estimated value today would be around $250 million.
Also remember that these estimates are only based on the recurring monitoring revenue, and do not include hardware revenue, which if included would significantly raise the estimates because top line revenue would be more than doubled.
But here’s what’s important about this analysis: In a worst-case scenario, where GTX only captures 3% of the total addressable market, because of today’s extreme undervaluation investors could realize a 100X return. That’s what I like about this trade!
Reimbursement codes could more than triple GTX’s revenue
The catalyst that would propel GTX from capturing 10% of the market to 30% of the market, would be success in obtaining reimbursement codes. This would be a game changer for GTX, because Medicare and insurance companies would then cover some or even the bulk of the cost, which would more than triple the number of patients who could afford SmartSoles. Many lower income patients wouldn’t buy SmartSoles if they had to pay themselves, but would buy if Medicare or an insurance provider paid.
