Why Progressive Green Solutions (PGSC) is Well Positioned to Drive Shareholder Value Through Reverse Logistics
Some of the largest retailers and shippers in the business utilize reverse logistics (“RL”) to capitalize on returned items and sell these goods in a secondary market. Items that are not brand new and ones that have never been used are procured through returns or even from stores like Sears (SHLD) and Macy’s (M) to create revenue from items that were once discarded or simply liquidated at extremely low prices. According to former Best Buy CMO Barry Judge, “Secondary market electronics sales represent an estimated $15B market in the United States.” So we know this is a huge market secondary or not.
Many Fortune 500 companies like GE (GE), Amazon (AMZN) and Ebay (EBAY) are taking full advantage of what some used to call a mistake. According to a quote by Dan Eisenhuth, executive vice president for asset recovery at GENCO Distribution System, “Retailers used to liquidate to Compensate for ‘screw-ups.’ Today they do it to stay fresh.”
How “Fresh” is Selling Damaged and Refurbished Goods?
To put things into perspective, the value of U.S. remanufactured production grew by 15 percent to at least $43.0 billion, supporting 180,000 full-time U.S. jobs in 2011, according to the US International Trade Commission. There is no doubt that the market is getting bigger and with the DOW hitting 18,000+, new companies are sure to emerge as secondary market consumer electronic distributors and secondary appliance distributors.
The average consumer saves close to 30% for an item that has a small ding from the show room or for a scratch from moving it off a truck. For example, consumers spent $998 on average per person in 2011 for electronics and that would have been roughly a $300 savings. With more and more people spending their money wisely and with these items being “as good as new” the industry as a whole has blossomed into a great investment opportunity.
PGSC: Undiscovered Company Beginning to Increase its Footprint…Quietly
Take a look at potentially undervalued company, Progressive Green Solutions, Inc. (PGSC). This company is deeply seeded into reverse logistics and boasts some strong numbers in its financials. The first 6 months alone show revenues nearly hit $1million every quarter with a 20% gross margin. Total cash on hand was just over half a million dollars and total current assets nearly topped out at $2million after the close of its second quarter. More importantly, the company has already begun streamlining operations.
First it was able to decrease COGS by adopting the capitalization of direct labor and packaging costs. Second, the company realized an increase in gross revenue attributed to greater availability of inventory for sale and an addition to the sales team late in June 2014. Finally, Progressive saw an increase in gross margin due mostly to a new supply chain of air conditioners (out of all potential products that could bump up numbers). It will be interesting to see how this next quarter unfolds especially as the company continues to grow.
Due to the nature of its operational structure, Progressive has begun setting itself apart by not only focusing on building strong inventories but also enhancing how direct laborers (the “boots on the ground”) are fulfilling orders. This is a crucial piece in the revenue model believe it or not. If operations suffer because of employees working inefficiently, the bottom line could greatly suffer. PGSC has engaged this model to generate more revenue, increase inventories (the lifeblood to RL), decrease cost, and increase margins all within the first 2 quarters of doing business under this model.
Right now reverse logistics has gained the attention of some of the big organizations in the retail spot and with the size of the market, a smaller player even grabbing a 5% market share could see impressive revenue numbers with shareholders reaping the benefits. Even if you take 1% market share of a $43B industry, a company would be roughly generating $430M a year in annual revenue. For PGSC, a $430M revenue number would put this stock around $3.75 currently it’s trading at $0.70 leaving over 500% in potentially upside if Progressive’s stock ran to those highs.
As a more familiar industry, (if you aren’t up on your air-conditioning market facts) the Mobile phone industry sold about 1.2 B phones world wide last year and the return rate for that 1.2 billion was about 8% according to the Recovering Lost Profits by Improving Reverse Logistics report commissioned by UPS and written by Curtis Greve and Jerry Davis. That means that there were roughly 96 Million phones that were refurbished and then sold on the secondary market. At an average resell price of $82.50 there are certainly those who are profiting handsomely from the 7.9B that’s generated by the resale of these secondary market.
Reverse logistics is a relatively new industry having its humble beginning back in the 70’s with dry stored items being shipped to grocery stores who wanted to max their profits and not take such devastating losses. Little did the clerks and fork-lift operators know at the time that their screw ups would ultimately be a defined and studied billon dollar industry; now there could be an incredible opportunity right in front of us to take advantage of such a growing market. Progressive Green Solutions has found an underserved niche and has continued to grow quarter over quarter as it continues to streamline its operations and feed the fire through adding to its inventories. Simply based on its growth and revenue potential alone, this could be an incredibly undervalued company and a reason to look closely at the company especially as the third quarter is coming to a close and a new fourth quarter will be underway for the Holiday Season.
Current Market Value is Roughly $80M. 430/80 =5.375 multiple