To investors,

The market has been focused on the recent rise in bitcoin’s price. The asset sits at $98,700 as of this morning. That is quite an increase from the ~ $17,000 we saw during the FTX collapse in November 2022.

A lot can change in 2 years.

There is another area of the market that I am spending a material amount of time — public companies. I believe that numerous crypto-related public companies are undervalued. Some of them are misunderstood, some of them are smaller cap assets, and some of them have not done a great job of telling their story.

Regardless of the reason, I am constantly looking for companies that are undervalued because that is where I believe a good risk-reward can exist. When I find these companies, I become a shareholder so I can enjoy in the potential upside. You can think of this strategy as the intersection between value investing and growth investing — find undervalued companies in growth sectors with big tailwinds behind them.

Over the next few days I will break down some of these companies in the hopes of shedding light on how mispriced the public market can get.

Lets check in on DeFi Technologies for today’s breakdown (CBOE: DEFI) (GR: R9B) (OTC: DEFTF).

As you may recall, I wrote to this group on April 4th this year to explain why I would have pitched this stock at the Sohn Conference if I had been in attendance. I concluded that letter with the following:

“My best analysis is that this stock is wildly undervalued at the moment and given the sector that it operates in, along with the products that it has in the market, there should be strong tailwinds through the rest of this year.”

The stock was trading at $0.54 per share at the close on April 3rd. Today the stock trades at $2.41 based on yesterday’s close. This represents a ~ 450% return since I wrote that letter in April.

But just because a stock has appreciated materially, it doesn’t mean that the stock is no longer undervalued. For example, EMJ Capital’s Eric Jackson put together a great summary two weeks ago of why the business is still undervalued. He wrote:

I believe DeFi Technologies ($DEFI in Canada, DEFTF in the US) continues to be significantly under-valued. Since Trump’s election last week, crypto has gone bananas but DeFi’s stock price reaction has been muted.

In my view, it should be trading around C$10/share or US$7/share at the moment vs. C$2.40 or US$1.73. Here’s why:

•Their ETP (or ETF) business is doing C$120M a year in revenues, almost all of which drops to the bottom line; their DeFi Alpha prop trading group has generated more than C$100M in revenue in the last couple of quarters and it’s likely that they’ll continue to generate a minimum of C$50m in high margin revenue annually going forward (remember they just closed the Stillman prop trading acquisition)

•That’s C$170M a year revenue that’s likely to drop almost 100% to the bottom line; as the value of crypto goes up, their $120M a year ETP line goes up and they’ll likely increase their assets as they’ve guided to the number of ETPs going up from 28 currently to 40 by the end of 2024; the DeFi Alpha group is a wildcard but it wouldn’t be surprising if they can exceed C$50M a year in high margin revenue 

•Let’s assume they’ll do C$170M a year in net income in 2025; according to Bloomberg consensus estimates, DeFi will do C$151M in net income in 2025 so that’s close

•What multiple should C$170M a year in net income trade at? $HOOD and $COIN trade at over 40x next year’s profits; DeFi is a slightly different business — highly reliable ETP business with a more volatile trading crypto business: kind of like Mike Novogratz’s Galaxy Digital business which trades in Canada ($GLXY) only at a 17x forward P/E

•At that same multiple, DeFi’s ETP and DeFi Alpha trading business is worth C2.9B

•They also have C$13M in cash, no debt, and C$52M worth of various crypto on their balance sheet (like 209 BTC, 121 ETH, 13,000 SOL and others); they’ve indicated that they intend to acquire more BTC and SOL now that they paid down their debt and should be generating cash moving forward

•Assume those digital assets should be valued at a multiple of their current value and add them with cash to the Galaxy-like multiple for DeFi’s business and you get to C$3B in market cap

•There are 300m DeFi shares which mean that DeFi currently should be valued at C$10/share or US$7.12/share

•Then you have the fact that they’re likely going to up-list to the US properly once the Gary Gensler regime at the SEC is replaced by Trump’s in 2025, plus the option value of them being a mini-MicroStrategy for BTC and SOL

•And there’s the option value of their ETP business if they continue to add the number of products  they sell in their current geographies where they are available plus any new geographies they move into (which they’ve suggested previously they want to) like Asia and/or the Middle East.

For these reasons, I continue to hold DeFi and believe the shares remain significantly undervalued and still capable of being “the next Carvana $CVNA”

This logic seems fairly strong. DeFi Technologies announced their Q3 2024 earnings report a few days later. You can read the full announcement by clicking here. Here is the summary provided by the company:

• Total Revenues, EBITDA and Net Income: DeFi Technologies recorded Total Revenues of C$24.2 million (approximately US$17.8 million) and C$152.4 million (approximately US$112.0 million) for the three and nine months period ended September 30, 2024 and Net Income of C$24.9 million (approximately US$18.3 million) and C$97.2 million (approximately US$71.4 million) for three and nine months ended September 30, 2024. The Company also reports EBITDA of C$26.2 million (US$19.3 million) and C$102.3 million (US$75.2 million) for the three and nine months ended September 2024, reflecting its strong operational performance and robust revenue growth.

• Substantial Growth in Assets Under Management (AUM): AUM grew by 51.6% since December 31, 2023, to approximately C$770.5 million (US$570.8 million) as of September 30, 2024, driven by favorable market conditions, new product launches, and strategic corporate actions that enhanced trading volumes and overall financial performance. Since September 30, 2024, AUM has further increased to a record high of C$1.1 billion (US$785.4 million) as of November 13, 2024.

• 2024 Outlook: Looking ahead, DeFi Technologies projects its annualized revenues for fiscal 2024 to reach approximately C$198.6 million (US$141.5 million), supported by ongoing AUM growth, upcoming ETP launches, and the integration of new acquisitions, which are poised to capitalize on the favorable conditions in the digital asset sector. Furthermore, the Company continues to evaluate additional Defi Alpha trading opportunities.

It is important to call out that investors will discount a stock trading in Canada, so the cross-listing effort to the United States will be important. This is true for many of the crypto-related companies trading in Canada at the moment.

Additionally, it feels like we are in a crypto bull market. Solana just hit a new all-time high last night (DeFi/Valour’s largest ETP is their Solana ETP) and bitcoin is poised to cross $100,000 for the first time in history. But crypto markets are not guaranteed to go up in a straight line, so there is always risk associated with investing in highly volatile industries.

DeFi Technologies (DEFTF) is one of the public companies that I still believe is undervalued compared to the rest of the market. I will write about a few others in the coming days to bring light to how widespread this issue is.

Hope you all have a great day. I’ll talk to you on Monday.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

DISCLAIMER: Before I let you go, I want to lay out a few disclaimers. It is important to me that you all understand these details.

I personally own DeFi Technologies stock. Professional Capital Management, an investment firm that I am a majority shareholder in, also holds DeFi Technologies stock after we sold Reflexivity Research to the organization earlier this year. Some people may look at today’s letter as me talking my book, which has a hint of truth to it, but I think of it much more as I have skin-in-the-game and stand to lose money if I am wrong in my analysis.

Please don’t take today’s letter as investment advice. Do your own research. You all are adults who can think independently and critically. Stocks are wildly volatile, they can go up and down a lot, you can lose your money investing in the market, and nothing I have written here should be used by you to make investment decisions. No one, including me, is right 100% of the time.

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