Risk vs. reward. It's a daily dilemma for stock traders around the globe. The more risk, in most cases, the greater the rewards. That model is the same for home loans, auto loans, and just about any agreement where a quid pro quo is put into play. Better odds of delivering a return lead to lower interest rates in loans and generally lower multiples for stocks. In the cases where both parties live up to their obligations, it's a win-win proposition.
Risk also plays a vital role in the investment markets. And, while there are indeed instances where people can get taken advantage of, taking time to understand both sides of the trade usually leads to the highest rewards. Like always, knowledge is power. That's especially in trading stocks, where having accurate information can turn pennies into dollars.
Take the case of Seven Arts Entertainment Inc. (OTC Pink: SAPX), an over-the-counter stock trading at $0.0034 per share that gets a tremendous amount of attention. Some of it is good, some bad. However, a growing number of investors believe that most of the bad come as part of an agenda to provide dated information about a company trying to change its path. While the information posted on blogs may be accurate, much of it is also stale. Proponents of SAPX, on the other hand, say it's a new beginning for the company.
They appear to be right.
Getting Current On The Regulatory Side
Last week, Seven Arts provided an update saying that it has completed all requisite annual filings necessary to become current in its reporting requirements. It also paid its fees to the OTC markets to retain its listing and is taking steps to reduce its authorized share count. Why should investors pay attention? Because the new CEO is doing since June what its predecessors have not done in years- taking care of business.
And more than addressing its corporate side, SAPX management is making deals to grow its business and monetize untapped value in its already extensive asset portfolio. Thus, if all is heading in the right direction, why are some on social media at war with SAPX? The answer is simple- instead of having only a buyer and a seller, there's also an uninvited participant, the "protector." The three don't mix, especially with the "protector" typically not having financial skin in the game.
But everyone should get their say, right? Maybe not always, especially when parties with no skin in the game weave a tale against every investment they disagree with. Keep in mind, too, that these self-professed gurus aren't infallible, noting that only 6% of professional traders succeed despite having volumes of analytical data at their disposal. Thus, taking trading advice from social media pundits may sometimes do more harm than good.
That's especially true when the "protectors" spend inordinate amounts of time bashing companies with information that may no longer be relevant, sometimes decades old. Wouldn't their time be better spent using their expertise to trade, enjoy the windfalls, and travel the world on a yacht with Ben and Jen? They don't because most can't.
And that includes the Twitter warriors, who claim to have no agenda but publish tweet after tweet, often posting well-dated data about why investors should steer away from a company. No one's disrespecting that opinion, by the way. It's just that by using that glass half empty strategy, some of the greatest trades ever would have been missed. Time has proven that forward-looking strategies work best.
It's that strategy that allowed investors to forget the past and take "new beginnings" opportunities in Apple (NASDAQ: AAPL) the second time around, Domino's Pizza (NYSE: DPZ), and Chipotle (NYSE: CMG) after its missteps in 2017. The savvy investors, maybe seeing what others didn't, made out tremendously. Most that bought the bottom saw exponential increases in share value.
What was the big difference? Investors looked forward, not at past performance. Moreover, they embraced management plans setting their companies up for future success. And a good number of investors think that the same scenario is playing out for Seven Arts Entertainment. And they may indeed be correct.
Don't Let Social Media Be An Investment Advisor
Frankly, after reading the tweets, posts, and blogs about why SAPX won't make it, it led to finding reasons why they might. Moreover, pointing to matters from 2020 didn't quite make a strong case with new management at the helm. Moreover, being retooled from top to bottom, SAPX, like Apple did, could deliver similar exponential long-term returns. Keep in mind that SAPX, like those mentioned, has a CEO that took over in June of 2021 and has also set a new plan of action into motion. Thus, while he is managing baggage from predecessors, it appears he is well into the process of settling it into a place that makes it irrelevant to the future. Indeed, SAPX is just as worthy of a second chance to do things better.
Sure, there is some risk ahead. But, there comes the point where the rewards of an expected to be well-run company outweigh the potential headwinds. And at $0.0034 a share, that could be the case here.
Still, as every investor should know, be prepared to lose part or all of any investments made in stocks. But that's true no matter the size of the company. Do Enron, WorldCom, and Tyco ring any bells? To those trading long enough, they may have lost substantial amounts of money from those high-fliers, especially with brokers piling their high net-worth clients into these stocks as soon as funds were available to trade. What's the point? It's that no one knows the future- not CNBC anchors, Bloomberg reporters, or professional Tweeters.
Thus, it may be best to steer clear of the nonsense. The best traders do their own due diligence. And by taking that approach and trading with a forward-thinking bias, SAPX looks attractive.
Here's why.
Creating Value Through Actions And Acquisitions
Foremost, as of June 2021, Seven Arts Entertainment is headed by a new CEO, Jason Black. And as noted, he has been quick to address required filings, has completed listing applications, paid fees to OTC Markets, and enlisted a new transfer agent to settle up its capital structure. That's quite a bit of progress in a little less than 60 days. And that's taking care of business on the corporate side only. He is also making deals.
In July, Seven Arts Entertainment announced expanding its production capacity by acquiring an Atlanta-based film and music studio, Muse Media LLC. That deal adds immediate value by maximizing Muse Media's experience in commercial production, broadcast commercials,docu-series, and music videos.
Even better, SAPX immediately added a semi-recurring revenue model that provides supplementary cash flow during major feature production runs. It also allows SAPX to expand its active presence in the film and music production space. That's not a bad deal by any means. By the way, it comes with more than capable leadership.
Seven Arts noted that Muse Media will be headed by Atlanta-based cinematographer Matt Bryant, an award-winning producer, celebrated musician, and documentarian. He is also well acquainted with the business, having completed an original film screening at the Cannes Film Festival in 2020. Better still, Bryant has been involved from the top-down in creating profitable and compelling content for broadcasters and clients alike. Muse brings assets as well.
Building Value In Its Asset Portfolio
The company already works out of two studios in the greater Atlanta area. Its film production studio features a sound stage equipped for advanced motion graphics, compositions, high & low-key production and has featured some of the most prominent celebrities from around the states.
Its music recording studio is equally impressive, boasting a prominent two-level production facility explicitly built and designed for album quality sound engineering. Moreover, its "massive" featured recording floor provides the space for the in-house recording of complete bands and solo recording artists alike. Some compare it to the size studio where The Wrecking Crew assisted in recording thousands of titles in the 60s and 70s. Combined with the value of Muse's revenue stream in the real investment world, these two assets should easily contribute to more than a $0.0034 valuation. Still, it's a gap that can get filled.
Factor in too that Muse is a perfect fit into a new business plan, positioning SAPX to take advantage of production opportunities in the southern parts of the US. As many know, the industry has changed tremendously since the 1990s, with green-screen and CGI allowing production to occur almost anywhere at any time. Hence, with SAPX having a respected presence in the Atlanta markets, it puts options on the table to make deals with Hollywood studios needing to extend their reach outside of its local territory. And with SAPX now having the sound and production stages to partner, expecting potentially lucrative deals in the near term is not a stretch of its capabilities.
One may already be in progress. In July, the company announced commencing its first project under new management. That project is a documentary about the music industry and is fronted by respected Seven Arts Music associate Thom Hazaert. Details on that project should be forthcoming.
Also, SAPX said it is preparing to tap into the value of an already respectable archive of music and films. That's potentially excellent news as well.
Seizing Opportunity In A Changing Landscape
Best of all, they can expedite that process by taking advantage of an industry that has changed dramatically since the start of COVID-19. Now, movies and videos are going straight to on-demand, with even the biggest stars in the business going straight to video. Interviews by many say the days of the giant payday are over. While that's potentially bad news for actors, it's actually great news for SAPX because it makes them a player in an industry that used to have incredibly high barriers to entry.
In fact, the changes help connect SAPX with streaming networks to license content that wasn't available to Seven Arts before its new CEO reinstated its mission. And at the core of that opportunity, and bulls and bears should agree, SAPX is positioned to benefit from a new source of revenue from processes that make those opportunities easier to exploit than ever.
Still, there's more to like.
Controlling Its Destiny
Perhaps the most significant asset going forward is that SAPX controls a project from beginning to end. They also use the source and talent available to them from members, screenwriters, and actors guilds for its script and acting content. For non-script content, SAPX says it will turn to IATSE editors.
Beyond the script, they will be taking on the production role as well. There, its ambition is its mission. And according to its new CEO, SAPX plans to create content about a subject and bring it to life in a way that its audience can appreciate at every level. That includes actors involved, graphics quality, music score, and location. And with its state-of-the-art facilitates, its quality has the potential to be second to none.
Of course, the best script and the greatest production can sit idle without distribution. SAPX plans to cover that part of the process, too, knowing full well the value in getting its stories to the world to create lasting memories through streaming services, web releases, and even occasional theatrical blockbusters. The combined result- from start to finish, SAPX gets the story to its audience. That, too, adds value.
By the way, SAPX notes it already has top-tier distribution partnerships that include the most prominent networks in the world, pushing video content through broadcast networks like HBO, Scripts Network, NBC, CBS, and Fox. Its streaming partnerships are equally impressive, with agreements made with Netflix, Youtube, Vimeo, Hulu, AMC, and more.
Thus, calculating the sum of the parts, there's a lot to like.
A Rally In Back Half Of 2021?
Frankly, SAPX's sum of its parts looks compelling. Indeed, higher than current levels suggest. And with filings getting current, fees being paid, a management change clearing away the prior baggage, and a business plan already creating value, Seven Arts stock may benefit from upside bias.
Part of those gains could result from substantial short-sale covering in its stock. For longs, that could be a catalyst of massive proportions. And for shorts that aren't savvy enough to cover at sub-penny levels, they may be setting themselves up to be victim to a heck of a short squeeze. With CEO Jason Black committed to bringing this company back to life, that could happen sooner rather than later.
Look, by all accounts, SAPX is deeply discounted for a reason. Some investors don't believe that even this aggressive new regime can get its filings done in time to satisfy the OTC markets. That may be a fair assessment to some. However, at the pace at which Black is getting things done, these bears may be overplaying their hands.
But that's the beauty of the markets- bullish buyers meet disenfranchised or profit-taking sellers. Consider it a win-win deal where both parties get what they want. And when pundits or bulls try to make a case by using irrelevant or dated material, consider that just noise and look elsewhere for help in making an investment decision. That could be the healthiest strategy to employ.
Here's the bottom line: Keep an eye on SAPX. If they get its filings completed and accepted, this stock could see a short-covering rally of exponential proportions. They have until late September to do so, which should be plenty of time to get things done. Hence, at roughly $0.0034, the risk/reward proposition is attractive, making the long side of this trade a compelling consideration.
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