Under-the-radar companies and their stocks often present compelling value investment opportunities. Agrify Corp (NASDAQ: AGFY), which shifted into rally mode during February, is one of them, with trading activity supporting that thesis. In fact, investors' interest in the AGFY story sent shares soaring last week on massive volume, trading over 22 million shares in a single day. Yes, profit-takers took gains. But it's important to highlight that the pullback actually strengthens the bullish thesis rather than detracting from it. And insiders appear on board with that assessment.
That's evidenced by their adding to holdings, which total roughly 46% of the shares outstanding when added to institutional ownership. That's not the only attraction. According to financial sites, AGFY has only about 929k shares in the float, far less than the implied O/S count of 10.2 million, which includes potential pre-funded warrant conversions. In other words, AGFY checks many of the right boxes to warrant serious investor consideration. Those include a milestone-filled February, deal-making momentum, and a balance sheet that can drive near and long-term growth.
Totaling the sum of those parts, share price weakness may offer a window of opportunity to seize a valuation disconnect that, if AGFY stays on point, could close sooner rather than later.
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Agrify Is Seizing A Unique Market Opportunity
That presumption is based on tangibles, not hype, particularly Agrify's standing as a respected provider of innovative cultivation and extraction solutions for the CBD products industry. Don't be misled by AGFY's microcap size; it's one of the few companies to combine data, science, and technology to target specialized needs in a booming industry. In fact, both emerging and maturing companies like Canopy Growth (NASDAQ: CGC), Curaleaf (OTC: CURLF), Cresco Labs (OTC: CRLBF), and Jazz Pharma (NASDAQ: JAZZ) may at some point like an introduction to AGFY if they haven't already had one. That could result from AGFY being at the forefront of a sector revolution regarding hydrocarbon extraction technology. Leveraging its expertise is already paying off.
Last week, the company announced signing a multi-year cultivation and extraction deal with HarvestWorks Farm, New Jersey, a licensed New Jersey operator. It's a comprehensive deal that includes a $3.4 million cultivation and extraction order for 156 of Agrify's Vertical Farming Units, a complete Turnkey Pure Pressure Solventless extraction Lab Package, a 2-year Service Support and Production Success Fee agreement at $350 per pound, and a five year SaaS Fee Agreement worth $1 million. While the terms are excellent, consider this: this deal can usher in many more like it.
That's because having HarvestWorks Farm on the client list can attract quite a bit of additional attention, noting its popularity and respect for being one of the first operators licensed to cultivate and manufacture CBD-related products in the state. More directly, being chosen by and serving one of the best companies in the state provides plenty of deal-making clout from a forward-looking perspective. And keep in mind that with New York and other states around the Jersey borders virtually decriminalizing segment product use, competition in the space will be fierce. That's excellent news for Agrify. Why? Because, similar to most competitive industries, only the strong will survive. And since Agrify fortifies client strengths, this under-a-dollar company may be one of the best-positioned companies to exploit a potentially massive national and regional opportunity.
Seizing On Rev-Gen Opportunities
It's fair to suggest they already are. A recent update from the company provided bullish guidance for 2024, telling investors to expect significantly better bottom-line results from aggressive cost-cutting that allows revenues to fall faster toward the earnings line. They also hinted that gross profit would increase by 105% to $1.9 million in Q4. That's not all. AGFY guided expectations to welcome the lowest cash burn in its history, putting them within reach of cash flow breakeven by the second half of this year. By the way, that report is expected this month.
More than just meeting or beating expectations can be a value driver. Investors will also be paying attention to guidance. Precedent could have another round of bullish commentary in the queue. If so, current prices may provide more than a ground-floor opportunity; they may be bargain basement.
Still, a bullish case needs more than guidance to steepen the share price trajectory. Agrify checks that box, too, with the combination of tangibles, abilities, and an invested management team as a driving force in accruing sustainable shareholder value. Agrify's proprietary micro-environment-controlled Vertical Farming Units (VFUs) fuel the operating engine. It uniquely enables cultivators to produce the highest quality products with unmatched consistency, yield, and ROI.
Better yet, clients can do so at scale when using AGFY's comprehensive extraction product line, including hydrocarbon, ethanol, solventless extraction, post-processing, and lab equipment. These tools and processes empower producers to maximize the quantity and quality of extract required for premium concentrates. In more relatable terms, especially for Agrify clients, it allows less work to produce more income. That's doing as it should- attracting new client interest.
Last month, Agrify announced the successful installation of a PX-30 Hydrocarbon Extraction System at Lume C-bis' Michigan facility. That implementation is a win-win deal. For Agrify, installing the PX-30 Hydrocarbon Extraction System is a milestone in revenue generation and product validation. That validation may be the more valuable long-term consideration, noting the endorsement of the most extensive system in its PX-Extraction series could lead to additional sales. Considering the PX-30 represents cutting-edge design advancement in hydrocarbon extraction technology to enhance efficiency and precision in the extraction process, that's likely.
Remember, for companies to stay competitive in a red-hot CBD and related products industry, quality control, consistency, and scale are vital. There are few second chances in a saturated market and, more likely than not, no third chances. So, the best defense against competitive poachers is having a better offense, in this case, better products. Agrify's ability to deliver that result brings them onto more clients' and investors' radars. Deservedly so. Remember, validation supports growth. And by proving its ability to provide and integrate state-of-the-art solutions to the CBD and hemp industries across the country, Agrify is strengthening its already solid reputation.
Repeat Business Serves as Validation
That's leading to sales growth, including from repeat business, evidenced by its latest sale to Lume, which has been operating with Agrify's XMU Hydrocarbon Extraction System. As its business grew and the operation required additional speed and throughput, it wasted no time turning to Agrify for solutions that provide immediate and accretive impact. As noted, they purchased the PX-30 system through Agrify's subsidiary, Precision Extraction Solutions, intending to elevate its extraction capabilities and meet the increasing demand for premium extracts in its target markets. Reasons support Lume's decision.
Distinguishing features of the PX-30 hydrocarbon extraction system include High Extraction Efficiency: The PX-30 ensures optimal extraction yields, maximizing the production of high-quality extracts of up to 240+ lbs. per 8-hour shift; Operational Design: Created with the operator in mind, the PX-30 offers ultra-low temperature operation with fast recovery times, with or without a compressor. All functions and features are easily accessible in a linear process flow with conveniently located controls and ergonomics designed for the operator; and Safety/Compliance: Agrify prioritizes safety, and the PX-30 is built with state-of-the-art safety features to comply with 3A sanitary and cGMP standards.
Those differences translate to client advantages. Combining the inherent value from that should help close the perceived valuation gap between assets, revenues, and share price. That may happen faster than many think. Remember, Agrify is leveraging industry-best solutions that keep them well-positioned and able to capitalize on revenue-generating opportunities by selling its equipment into the growing demand from players in the ancillary extraction market. Other news contributes to enhancing the value proposition.
In February, Agrify announced signing a Turnkey Ethanol Extraction and Lab Equipment Package deal with Denver Cole Labs, a conditionally licensed New Jersey operator. It's a substantial purchase. Precision Extraction's Turnkey Ethanol Extraction and Lab Equipment Package comprises a C-15 Centrifuge Ethanol Extractor, Solvent Recovery System, Decarboxylation Package, Short Path Distillation Kit, and Expert On-Site training. Denver Cole has also elected Precision Extraction's C1D1 Extraction Booth to safely manufacture products in their lab. In addition, Agrify's EliteLab distillation control and tracking software will help manage and optimize the day-to-day operation of the G3X-R short path system. Order cost is expected to reach upwards of $500,000 to start. They could grow appreciably higher through add-ons or by Agrify again showing proof of concept to other potential sector clients.
The good news from an investor's perspective is that AGFY's deal with Denver Cole Labs expands Agrify's market presence and enhances its pedigree as a premium extraction services equipment provider in New Jersey. Moreover, it adds to the growing partnerships in the Northeast and across the country, a solid testimony to operators' trust in Agrify's team and technologies in the most competitive markets.
This newest deployment will allow Denver Cole to produce high-quality ethanol extracts at scale, benefiting by repeatability and ensuring consistent products every run. Of interest, Agrify's technical and compliance experts were instrumental in selecting the equipment package under New Jersey regulations to meet the customer's goals. Navigating those compliance issues is an Agrify service that must be fully appreciated, especially as a powerful resource for building additional long-term client relationships across the United States. The news flow in February continued.
Accretive Milestone-Filled February
Agrify also announced signing a term sheet with PDS Ventures, LLC, a licensed Michigan operator, providing them a multi-year end-to-end managed extraction services agreement. This Managed Services agreement adds a new revenue stream, serving as a first-of-its-kind program where Agrify leases turnkey extraction and post-processing lab equipment to qualified operators. The company will also provide a full-time, on-site, hands-on customer success specialist to guide and manage extraction-related operations for the customer. The goal is to leverage the value inherent to these Managed Services to significantly increase the average lifetime value of our customers. But it's also designed to make money. Quickly.
The multi-year Managed Service contract facilitates Agrify to collect monthly production success fees based on the finished product produced, including a monthly management fee during the contract term. Its deal with PDS Ventures could earn Agrify up to $2 million throughout the lifetime of this multi-year managed service contract. Keep in mind that the value expected is generated from just one agreement. This services model could explode in popularity, putting Agrify in a position to exploit being in the sweet spot of opportunity through 2024. Considering client endorsements refer to this Managed Services product as a business "game changer," maximizing that potential can be potentially lucrative for the company in coming quarters.
All told, there's plenty to appreciate about this fast-growing company. And the more excellent news is that AGFY isn't sitting on its accomplishments from 2023. Instead, they are working to shift its growth pace speed from hyper to warp, ensuring they tell their story to an investor pool wanting to capitalize on valuation disconnects in companies ahead of the pack.
Those early investors could be the best rewarded, especially ahead of formal announcements expected to confirm record-setting financial performance in Q4 and, as importantly, guidance of that trend continuing. And, remember, with 45% insider ownership showing, they win when its investors do. So, the most opportune play may be to complete due diligence and side with management. After all, they know more than investors do...and they just purchased millions in stock. Thus, the adage, follow the money, may once again prove to be prophetic.
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