Faris Sleem, editor of The Bowser Report, is a leading specialist in low-priced, small cap stocks. Here he looks at Mace Security International (MACE), which manufactures personal safety and security products.
Mace Security offers pepper sprays, gels and guns, animal deterrent sprays, personal alarms, stun guns, combo kits and much more under the Mace brand. It also sells tactical spray products and systems to law enforcement, security professionals, correctional institutions and military markets.
The company distributes and supports its branded products and services through mass market retailers, wholesale distributors, independent dealers, e-commerce marketers, installation service providers and its website. Competitive Advantage Mace Security International has multiple significant advantages over its competitors.
MACE has become a household name over the years demonstrating the company's powerful brand recognition because of its dominance in the pepper spray market. MACE's brand recognition goes hand-in-hand with its sizable presence in the brick-and-mortar stores.
While the company also has a significant presence in various e-commerce channels, that is an area for potential improvement. The company's products are generally well-received, meaning almost any large investment in development yields a great return.
This is commonly an obstacle for smaller companies since their products normally cannot compete with the industry giants. However, it puts MACE in an outstanding position to capture market share with every product release. For example, the company recently released the Mace Palm Stun Device. The product is discreet and easy to carry, but it effectively provides protection in close-contact scenarios.
Mace Security has made great progress in improving its financials via revenue and income growth. Its gross profit margin has always hovered around 40%, meaning any substantial revenue growth contributes to the bottom line. In 2020, revenue grew 46%, marking the company’s largest year-over-year growth since the stock began trading on the OTCQX exchange.
Both revenue and gross profit surged in 2020, leading to stronger bottom line results. Gross profit margin slightly increased during the surge, showing that MACE is capable of sustainable growth.
The company has historically reported a net loss trending towards positive territory. However, over the past four quarters, MACE has reported quarterly net income of $100,000-$700,000 despite being impacted by international supply chain and logistics issues.
MACE has a healthy balance sheet for a growth stock. Its long-term debt represents only 5% of its total capital and does not raise any red flags. The company has a current ratio of 2.6, showing minimal liquidity risk. Cash and cash equivalents totaled $844,000 in the first quarter of 2021, the highest since 2016.
While its financial efficiency metrics are good relative to competitors, these high numbers also show that capital is available to fuel faster growth and/or research and development.
MACE has a price/book ratio of 4.4, which is 57% higher than its five-year average of 2.8. This means that the stock is valued higher than it has been historically. However, all of its value metrics are well below the industry average. Therefore, while the stock is more expensive than usual, it is still undervalued relative to its competitors.
The ideal entry point is under $0.45/share, but consistent revenue growth would justify a higher entry point. Ownership MACE currently has 64 million shares outstanding and a float of 41.6 million shares. The share structure makes for less volatility and higher liquidity. Insiders account for 16.6 million shares, or 29% of the total shares outstanding.
Ancora Advisors LLC and Richard Barone hold 8% and 6% of the shares, respectively. While it is unlikely that institutional investors will accumulate shares of an OTC-listed stock, MACE's insider ownership is reassuring for long-term investors.
The overall outlook for the personal safety and security products industry is outstanding with a CAGR of 14%. Considering Mace Security's strong brand recognition and revenue increase, the company is positioned to capitalize on this rapid growth. The consumer market (in which MACE grew 57% in 2020) will be vital moving forward. However, the positive outlook is accompanied by room for improvement. W
hile Mace Security has a fantastic balance sheet and well-received products, management has not allocated a significant portion of its capital towards creating new products and marketing them aggressively. To create even more value, MACE must do so.
In addition, e-commerce sales have improved, but making this a part of its strategic focus on marketing strategies would be wise to capture more consumer growth. Small adjustments such as website improvements and automating the order-to-ship process should substantially boost sales. The company's other strategic focuses are international markets and launching new products.
MACE has incredible potential and high quality products. The company reached many major milestones in 2020, and insiders accumulated more shares. It has a strong fundamental foundation and has consistently reported good earnings for four consecutive quarters. We believe that MACE offers a unique investment opportunity through its brand recognition and proven market penetration.
