Founded in 1990, Minneapolis-based Insignia Systems (NASDAQ:ISIG) provides a suite of marketing solutions for consumer packaged goods brands. This might not sound too exciting, but don’t make your final judgment until you’ve learned about the wild price action of ISIG stock.
Not long ago, Insignia currently topped a leaderboard, provided by Fintel, that’s used to track companies with the “highest likelihood of experiencing a short squeeze.”
Also, analytics firm S3 Partners estimated a short interest of 63.6% on ISIG stock’s free float. In other words, this particular stock is red-hot among retail traders because it’s a strong short-squeeze candidate.
But here’s the crazy part: some of these frenzied retail traders probably don’t even know what Insignia Systems does, or whether the company is profitable. So, we’ll take a deep dive into Insignia — not just the squeeze target, but the core business with investable potential.
What Happened to ISIG Stock
Just about any low-priced stock can become the target of a Reddit-fueled short squeeze. Stocks that are ignored/under-appreciated on Wall Street are particularly attractive, it seems, to these social-media traders.
ISIG stock apparently checked all of the required boxes in December of 2021. As the share price jumped from $5 to $30 in just a few weeks, InvestorPlace contributor Chris MacDonald rooted out the likely drivers of this stunning rally:
“A low float, relatively low price per share, and high short interest ratio are among the key factors short-squeeze enthusiasts are jumping on today. Indeed, at a high level, Insignia certainly does appear to be an attractive short-squeeze candidate given these factors.”
Well said, and well played. The retail rebels beat the short sellers at their own game once again, thereby proving that the squeeze trade didn’t end when 2021 did.
Okay, so now what? Investors are left with the prospect of owning ISIG stock at a much higher price point now.
It’s All About the Branding
Knowing this, we shouldn’t assume that the short squeeze can continue much longer, and should instead consider a more sensible, fundamentals-based investing strategy.
This means getting to know Insignia Systems as a company. What Insignia does, to put it simply, is help companies — mostly, consumer packaged goods sellers — with their branding efforts.
Think of the in-store signage and other display marketing that you see in grocery stores, as well as on-package advertising. These can help to promote dishwashing detergent, coffee, potato chips and many other common store items.
Insignia also offers a suite of analytics services that can provide insights into metrics such as foot traffic and eye-tracking analysis.
On top of all that, Insignia provides expertise in digital advertising, including mobile ads.
Profits Are Elusive
Now, we’re starting to get a more complete picture of Insignia Systems. The company’s been around since 1990, but isn’t afraid to adapt to changing advertising modalities.
That’s important, but is it enough to make Insignia a profitable enterprise? Let’s see what the company’s financial data tells us.
Reportedly, Insignia generated $3,493,000 in revenues during 2021’s third quarter. Unfortunately, that’s less than the $4,435,000 generated in the year-earlier quarter.
Moreover, it appears that Insignia has struggled to achieve profitability. For Q3 2021, the company incurred an earnings loss of $921,000. Also, during 2021’s first three quarters, Insignia reported a net earnings loss of $2,552,000.
This makes it more difficult to properly assess Insignia’s value. For example, without any earnings to report, there’s no way to calculate a price-to-earnings ratio for Insignia.
The Bottom Line on ISIG Stock
ISIG stock catapulted from $5 to $30 in a very brief period of time. However, this wasn’t likely due to anything that was happening with the company itself.
Short squeezes can be enjoyable to witness, and even more fun to profit from. Yet, they aren’t meant to last forever — and at some point, company fundamentals will matter again.
Therefore, I can’t recommend jumping on the short-squeeze train with ISIG stock now. Instead, investors should weigh Insignia Systems’ interesting business model against the company’s lack of profitability, and consider taking a cautious position.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.