I recently purchased Zoom Telephonics (ZMTP) for $1,000 (<1.5% position). This is a $1.70 stock with 13.5m shares outstanding ($23m market cap). They recently won an exclusive licensing relationship with Motorola for retail set-top boxes and modems (think Best Buy sales) through 2020. The company has been doing $11-12m in revenue at a slight loss for years but with Motorola they think they can add $50-100m per year in revenue and generate 8% net margins. They also have $50m in NOLs to utilize. So if earnings will be $4-8m then I am paying 3-6x earnings for the stock. If it traded at a 1x discount to ARRS the stock would be worth $2.22-4.44 per share (7.5x multiple).
I am basically relying on management guidance here so it should be a small position/flyer.
What would cause me to sell this investment?
If two quarters pass without any fundamental progression or if sales and earnings come on strong and the stock moves significantly higher than expectations ($50-100m in sales at 8% margins), then I will sell. Do not get caught holding this while waiting and waiting for results to materialize, move on if it does not take shape.
Sold this security on 4/26/16 after a quick 30%+ move. In hindsight, would have been better to wait for some tangible data from fundamentals given significant downside in the event things did not play out as anticipated.