Up until a few weeks ago, Support.com (NASDAQ:SPRT) stock was an under-the-radar microcap stock. Previously trading for less than its net cash position, investors were more interested in its deep value than the prospects of its operating business.
But, with its pending merger with crypto miner Greenidge Generation Holdings, this went from obscure stock to trendy stock in the blink of an eye. Some prior investors may have taken the money and ran. And, why not, given its immediate pop from around $2.15 per share to over $9 per share? But, following its pullback since the Mar 22 merger news, shares today (at $4.08 per share) may have room for a substantial rebound.
Why? First, the continued strength of cryptocurrencies. Bitcoin (CCC:BTC-USD) has finally broken above the $60,000 price level, and as of this writing trades for around $62,750 per coin. Whether they are buying it out of FOMO, or due to the bull case laid out by its biggest supporters, further moves towards six-digit prices may be on the horizon.
But, the price of BTC isn’t the sole reason why Support.com may have a lot of room to run. This mining play is not only reasonably priced — it has many advantages over its publicly-traded rivals.
Now, it’s not entirely a slam dunk. Shares could take a hit if BTC prices pull back unexpectedly. Yet, with much working in its favor, and following its big pullback, consider this a buy at today’s prices.
SPRT Stock: From ‘Cigar Butt’ to ‘Story Stock’
When the dust was settling on the March 2020 “coronavirus crash,” many stocks that had little exposure to the pandemic were thrown out with the bathwater. The market downturn made cheap stocks even cheaper. As a Seeking Alpha commentator broke it down at the time, one of them was Support.com stock. At rock bottom prices, the commentator saw it as a “cigar butt” stock too cheap to ignore.
What made this a “cigar butt” stock? And, what is a “cigar butt,” for that matter? The term, a term coined by Benjamin Graham, Warren Buffett’s mentor, describes stocks in declining companies, where the business faces a grim future, but, trading for less than its liquidation value, the stock offers investors one last “puff” of the cigar. SPRT stock fits this description well.
Its underlying business (outsourced customer support) was in decline. But, the stock traded at a healthy discount to its net cash position. Investors who bought it at its lows (around $1 per share) did well ,even before the game-changing crypto merger news. Shares were already up more than 100% from their lows just before the deal news.
Of course, today, it’s no longer a “cigar butt” stock. So, with it now a “story stock,” is it worth it to stick with it? Or will this “story” have a twist ending? Fortunately, there’s more to the sudden surge in this name than just speculative hype.
Why It’s A Much Better Crypto Mining Play Than the Competition
If you’ve read my prior articles on Bitcoin mining stocks, you know I prefer buying crypto itself rather than gain exposure to it through crypto mining plays. That was my take on Riot Blockchain (NASDAQ:RIOT), and my take on red-flag laden SOS Ltd. (NYSE:SOS).
Yet, unlike those two heavily-hyped crypto mining plays, the risk/return proposition here with SPRT stock may be in your favor at $5 per share. How so? For starters, as InvestorPlace’s Mark Hake pointed out, this deal was priced at a relatively low valuation. This alone could produce a sudden boost in its share price once the deal closes, if the stock benefits from multiple expansion.
But, that’s not all! As discussed in its merger presentation, Greenidge has several advantages over its better-known rivals. One that’s been widely disseminated (including by Hake in his article) is the fact that it owns its own power plant. Not having to rely on third parties for electricity, it has a much lower “cost of power” compared to peers.
Also, its upcoming increase in capacity means EBITDA is set to rise substantially in 2022. To top it all off, with the net operating losses (NOLs) from Support’s legacy business, the company may be able to shelter much of its surging profits from taxation.
Bottom Line: Buy This Ahead of the Merger Close
I wouldn’t buy this and expect it to soar another four fold, as it did immediately after last month’s news. But, given the strengths highlighted above, a move back towards recent highs and beyond is attainable.
Keep in mind that much of the bull case hinges on continually rising Bitcoin prices. Yet, a stronger crypto mining play than its peers, consider SPRT stock a buy ahead of the merger close.
On the date of publication, Thomas Niel held a long position in Bitcoin. He did not hold (either directly or indirectly) any other positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.