Back in the early days of Australia (we are talking about the 1800s) Australia experienced the first of many gold rushes. Ultimately a few lucky prospectors struck it rich while the rest struck out and went under. The real businesses that made significant profits out of the gold rushes were the individuals selling the picks and shovels (mining supplies).
The same is true today as we have seen recently from many nickel mines closing and the nearly 80% fall in the price of Lithium. The only businesses that consistently generate profits are the ones providing goods and services to the miners.
RPM Global (RUL) is a modern version of the seller of picks and shovels. The company provides software to miners and mining services businesses. Many of the products are industry standard and are critical to continued cost-effective mining. As a result, once a company has started using one of the company’s products – it is hard to stop.
The company operates through a subscription model like many businesses today. Subscription revenue has grown from $10M in 2020 to $39.3M. The business has just started to become profitable and with operating leverage kicking in over the coming years, profit is likely to increase quickly.
Technicals
On the technical front, the stock looks to be on the rebound from much of its bottoming out phase during 2023. It currently looks bullish since it is trading well above its intermediate term moving average (the 50 day). More recently, the stock has been trading in a tight 15 cent trading range throughout the last 6 weeks.
Wel’ll take a small position today as we anticipate the stock breaking out of this short-term trading range on the back of a positive earnings catalyst which is due on the 22nd February 2024.
TRADE ACTION
Number of shares: 2,000
Entry: Buy up to $1.80
Stop Loss: $1.50
Target: No Target
