The market is pulling back. This is happening in the S&P 500, the Nasdaq, the Russell 2000, and the index of small- and micro-cap stocks. Across the market, investors seem to have gotten ahead of themselves, and stocks with gigantic and out-of-whack multiples on far-future forward sales are getting burnt to a crisp.
However, caught in the crossfire are babies being thrown out with the bathwater of overvalued, overleveraged carnage – stocks that hadn’t been run up on speculative fervor and that now might be sitting at sharply undervalued levels.
We would argue that some of the most interesting stocks that fit this description are to be found in the micro-cap space, where risk-off behavior removes all benefit-of-the-doubt judgment, but that may still be on course for big things ahead.
One such example may be B2Digital Inc (OTCMKTS:BTDG), an emerging name in the fitness, combat sports, and live sports media markets.
The case for BTDG is about rapid, tangible growth in a core business that could have real promise but could be predisposed to discounted share pricing in the short-term due to a lack of understanding about the company’s model for building shareholder value.
The key insight is this: BTDG is building a strong brand in the booming mixed martial arts and “hardcore” fitness training space. And it has already established a foothold on potential market leadership in this area. Furthermore, it has tangible results starting to show up that should drive confidence in long-term strength once the crowd finds it.
Twin Engine Power
B2Digital Inc (OTCMKTS:BTDG) has a market cap of around $5 million. And yet, the company is posting triple-digit topline growth and may be on course for $5-10 million in revenues over the next two years. With that type of growth rate in a market space showing overall strong growth, one might expect a price/sales multiple of 2-3x on a forward basis, implying a simple triple in share price from here if the company can further prove its model.
That model is built of a combination of 1) live sports events featuring MMA fight nights viewed both in-person and over a growing PPV reach through OTT streaming on Apple TV and Amazon Fire, and 2) a gym segment that has expanded from one location to five locations over the past few months, where the company is driving rapid topline growth that is projected to reach $4-5 million in annual revenues over the next year.
The important insight – and where the value is really unlocked – is the notion that the former provides an accelerant to the latter.
In other words, as its brand and reach in the MMA space grows through its popular B2 Fighting Series Fight Night events, that brand can be harnessed to gain a market edge in marketing its fitness and training facilities.
The same strategy has worked wonders for the UFC and its gym segment.
By leveraging its MMA brand to drive fitness and training memberships at its network of gyms, the company cultivates a committed base of members who are more likely to be “stickier” as gym customers because they represent the hardcore segment of the gym-going population. That reduces turnover while it increases the efficacy of marketing.
In its past two quarters, the company has seen accelerating revenue growth in its gym segment, last reporting 126% sequential quarterly growth. Given the recent sharp expansion in its MMA efforts, one might expect that rate of growth to further accelerate in coming quarters, especially as it continues to gobble up new gym locations along the way.
B2 Fighting Series Growth
The past few months have evidenced rapid growth in its fight night events.
B2Digital Inc (OTCMKTS:BTDG) recently provided an update on financial performance data from its recent Live Events, noting that both the rate of events per month and the contribution of PPV sales are seen by the company as escalating versus pre-pandemic assumptions, with PPV sales increasing 1,550% on average, per event, compared to pre-pandemic levels, and the company now reportedly on pace to put on 50 or more events per 52-week period, which represents an increase of roughly 100% as compared to pre-pandemic levels.
According to its recent communications, that puts the company on pace to see $1.5-2M in Annualized Sales from its live events alone. And that excludes sponsorship revenues, which represent a quickly approaching additional line of income.
“We are seeing a number of very positive trends and dynamics crystallizing in recent performance data from our Live Events,” commented Greg P. Bell, Chairman & CEO of B2Digital. “The upshot is this: through updates and investments in our team, equipment, and expertise, we have acquired the capacity to put on Live Events at a much faster pace than we have in the past. At the same, our PPV marketing has evolved to produce much better results, and we are also likely approaching the end of live crowd attendance restrictions before too much longer, which should have a large impact on cash flowing in the door, especially given the accelerated frequency of our events. Finally, we are also likely on the doorstep to beginning the process of monetizing our brand and events through the sponsorship channel. That is another significant factor that we believe will become a major part of our longer-term strategic roadmap.”
We would also note, as the company did, that its in-person audience “gate” ticket sales are likely vastly understated relative to potential because it has been constrained by regulations related to the pandemic. That restriction is attached to a ticking clock that is rapidly winding down toward absence as vaccine-induced herd immunity approaches in the US live events marketplace.
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