Document Security Systems, Inc.

DSS Details

Document Security Systems, Inc. (NYSE: DSS) is a multinational organization offering blockchain security, direct marketing, healthcare, consumer packaging, real estate, renewable energy, and securitized digital asset services. It operates on a distribution sharing framework under which its investors are distributed shares in its subsidiaries as DSS spins them off as separate public entities. On September 20, 2021, the company announced it would change its name to "DSS, Inc." effective September 30, 2021.

Equity Investments: On September 09, 2021, DSS purchased 6,666,700 new shares of American Pacific Bancorp's (APB) common stock at an issue price of USD 6.00 per share for a total purchase consideration of USD 40 million. As a result, DSS now holds more than 50% stake in APB, making it APB's majority shareholder. APB is a bank holding company engaged in commercial lending and acquiring equity stakes in other commercial banks in the US.

In contrast, under an agreement signed with Alset EHome International, Inc. on September 08, 2021, DSS received gross proceeds of USD 15 million in exchange for the issuance of 12,155,591 shares of its common stock at USD 1.234 per share.

Q2FY21 Results: The company reported a 50.65% increase in total revenue to USD 4.19 million in Q2FY21 (ended June 30, 2021), compared to USD 2.78 million in Q2FY20, primarily due to higher packaging sales driven by the attraction of new customers and the return of existing customers to pre-pandemic levels. However, net loss (attributable to common shareholders) for Q2FY21 increased to USD 8.42 million from USD 0.79 million reported in Q2FY20. DSS exited Q2FY21 with a cash balance of USD 65.65 million and total debt of USD 8.15 million.

Key Risks: During H1FY21 and H1FY20, DSS generated 45% of its total revenue from its top two customers, who also accounted for 75% and 53% of its total trade accounts receivable balance as of June 30, 2021, and 2020, respectively. Such over-reliance on a few critical clients could be detrimental to the company's financials in the long run.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

DSS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: DSS's stock price fell 29.28% and 67.76% in the past three and six months, respectively, and is currently close to the lower end of the 52-week range of USD 1.14 to USD 7.62. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 46.16. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 1.56. Considering the significant correction in the stock price, equity investments, continued expansion into the direct marketing industry, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 1.28, down 0.78% as of September 24, 2021, 10:50 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.