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Thursday, October 29, 2020

What’s Really Driving the Breakout in ImmuDyne Inc (OTCMKTS:IMMD)

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ImmuDyne Inc (OTCMKTS:IMMD) is a penny play in the OTC healthcare space that just went into orbit. And so we face a key question: Is it for real? The move is a technical breakout in a stock with a float listing around 25M shares. So that’s real enough. The ostensible catalyst was a company overview note that contained some strong argumentation, including the suggestion that management has a strategy for lowering customer acquisition costs.

Since revenues are jumping bigtime for the company right now, that would be a very important development, if true. Sales ramped from $714K in 2014 to $1.25M in 2015, and are expected to be reported at over $5M in 2016. But the stock hasn’t done a lot. One can assume this is a lack of expanding margins off customer acquisition costs along the way up that ramp. This is a direct sales company more than a healthcare company. Hence, we might pin the breakout on what boils down to guidance released in the note: Effectively, the company is suggesting a guide-up in direct sales margins for 2017 based on a shift toward in-house sourcing. We will take a closer look at that below. But first, let’s greet this company.

ImmuDyne Inc (OTCMKTS:IMMD) promulgates itself as a company that develops, manufactures, and sells natural immune support products primarily in the United States.

It offers nutraceutical and cosmetic product lines, including yeast beta glucans that are natural extracts for various oral and topical applications. The company’s nutraceutical and cosmetic products for yeast beta glucans are the daily oral supplements, such as dietary supplements to support immune system function; and topical rejuvinating serums and creams that are intended to support the skin’s immune system response and defense, skin renewal, and repair of sun and environmental damage. It sells its products directly and through distributors to pharmaceutical, nutraceutical, and consumer product companies, as well as consumers.

Immudyne, Inc. was incorporated in 1987 and is based in Mount Kisco, New York.

According to company materials, “lmmuDyne, Inc. is a health and wellness company which develops, manufactures, markets, and sells innovative lifestyle products. The Company’s lead products contain its proprietary yeast beta glucans that have been shown through testing and analysis to support the immune system. The Company’s products include once a day oral intake capsules as well as topical serums and creams for skin application. lmmuDyne also has developed a proprietary natural delivery technology for potential new market opportunities. All of lmmuDyne’s intellectual property is protected by patents and/or trade secrets.”

However, as the company notes, “ImmuDyne has experienced significant revenue growth over the past 2 years. While some of this growth came from our Beta Glucan raw material business, most came from the launch and rapid growth of our direct-to-consumer sales operation.”

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As noted above, the company put out a lengthy corporate update to start the week. There was a lot of info there and many details we won’t cover. Our purpose here is to point out the following passage and how it plays into the larger financial story for IMMD right now:

“In Q4 2016 and Q1 2017 we began investing time and resources into an internal media buying strategy which we felt was essential to the Company’s long term success. Relying solely on third party exchanges for customer acquisition, as we did in 2016, created artificially high customer acquisition costs and a lower quality, and a less profitable customer. We believe that our internal media strategy will add significant value to our business, and reduce our customer acquisition costs by nearly 50% from 2016 levels, as we enter into Q2 2017 and beyond. In addition, initial indications are that customers acquired internally are more valuable and have greater retention than customers that are acquired through third parties. This equates to greater earnings for our shareholders and more scalability overall for the business.”

The company is commanding a market cap of $27.5M at present, and has a solid balance sheet according to recent filings, with cash sitting about twice current liabilities. Debt has grown a bit in recent quarters, but it’s not an issue.

More importantly, IMMD has pulled in a solid $4.6M in total sales over the past year (most of which, as we know, “came from the launch and rapid growth of our direct-to-consumer sales operation”). But the key connection is in the fact that this top line number has been booming higher: y/y quarterly revenues have swelled at a red hot 394% comp. If the company is right, and it is about to “reduce our customer acquisition costs by nearly 50% from 2016 levels,” then the story really clicks into place.

So, in the end, we have to take the stance on IMMD that, while there may be some other forces at work here besides the fundamental story and the technical breakout, we don’t see any need to imagine them into existence. There is a self-contained way to view this move: The float is small, as noted at the outset. And if this is effectively a guide-up in margins, given this monster top line growth rate, then it’s not shocking to see a major breakout to the upside. As more color becomes clear on the name, we will review the situation and update our take. For continuing coverage on shares of $IMMD stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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