Cynergistek (CTEK) Is “Good Business Inside a Bad Business” Company: Investor

Long Cast Advisers recently published its Q1 Investor Letter (you can download a copy here). The Brooklyn, New York-based investment firm talked about its top five positions in the letter, including Cynergistek Inc (NYSEAMERICAN:CTEK) – which is a California-based cybersecurity and information management consulting firm serving the healthcare industry. Long Cast Advisers made some important comments regarding Cynergistek in the letter, calling it a “good business inside a bad business” company. Here is everything that Long Cast said about the company:

Cynergistek [is] a “good business inside a bad business” company. The “bad business” is the low growth, low margin Managed Print Services, which represents the bulk of revenues but a fraction of the CF. The good business is the high growth, high margin Cybersecurity Consulting and Staffing business, acquired in January 2017.

Talking about opportunities, Long Cast Advisers said:

CTEK trades at a discount to other companies in the consulting/staffing industry so if cash earnings grow with continued mix shift towards the high margin cybersecurity offering, investors should win on earnings growth, re-valuation and the value accruing to equity shareholders as debt is paid down. While the business is competitive, the company ranked highly for the 2nd year in a row as a healthcare focused cybersecurity vendor. Access to talent through military pipeline is a differentiating advantage.

Nevertheless, there are challenges to the thesis, according to the investor.

The customer base – healthcare institutions and hospitals – doesn’t have the fattest wallet. The sales cycle is long and slow. Customers tend towards smaller institutions which are potential consolidation candidates. We view the opportunity to expand into new markets (education / academia) as the biggest offset to these primary risks.

Cynergistek Inc (NYSEAMERICAN:CTEK) is a cybersecurity and information management consulting firm that provides services to the healthcare industry. It offers services and solutions to organizations for privacy, security, compliance, and document output management. Over the past three months, the company’s stock has plummeted around 4%. Meanwhile, over the last 12 months, the share price has dropped nearly 8%, according to Morningstar.