System1, Inc. develops technology and data science to operate responsive acquisition marketing platform. The company also operates a real-time coupon code search engine and directory that offers coupon destinations for online shoppers. It serves customers in the areas of health, subscription, finance, insurance, business and technology, travel, auto, and other direct-to-consumer businesses. The company was founded in 2013 and is based in Los Angeles, California.

System1, Inc.

Consumer Cyclical

The company pays dividends on rare occasions. There have only been a few years with dividend payments in the past ten years. Dividend per share (DPS) has grown yearly, and there is a clear trend. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. 

SST reported revenue of USD 344mn in the last 12 months, down 24% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 56% from FY23 to USD -1.07. Market expects EPS to reach USD -0.94 in FY25.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 53ppts over six months and grown 22ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is slightly negative.

The company has reported very poor EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 4.1% in the last 12 months, up from 0.1% in FY23. 

Historically, SST has reported very poor net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled -21.7%, a growth from -50.2% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to -14.0% in the last 12 months, an increase from -25.7% in FY23. The market analysts predict that RoA will be -14.3% in FY24, again weaker than its peers. 

In the last 12 months, the return on capital employed (RoCE) grew to -17.1%, below the peers. The consensus estimate for FY24 for RoCE is -7.1%, again behind the peers. 

System1, Inc. reported a return on equity (RoE) of -69.3% in the last 12 months, up from -87.5% in FY23. The market consensus projects an RoE of -63.9% in FY24, again behind its peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been -2.1 in the past several years. This ratio implies a fragile shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

SST has very poor trading liquidity. It will take at least a day or two for the average private investor to sell a common position under normal market conditions. Liquidity is very unstable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. The stock has a tiny market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is very high. Among the negative credit factors, we point to slow historical revenue growth, bleak profitability, negligible return on capital, poor working capital management, weak debt servicing capacity, inadequate interest coverage, and an unfavourable capital structure.

In highly turbulent market conditions, SST is exceptionally volatile. In other words, the stock will be among the worst-performers in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be critical. 

In normal market circumstances, SST is exceptionally volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change quite unpredictably. The stock's losses on its worst days (less than 1-5% of the time) will range from critical to immense. 

Based on key historical and expected multiples, the stock is slightly undervalued relative to its peers. In particular, the stock is 'expensive' on EV/EBITDA. 

System1, Inc.

$ 0.44

3

System1, Inc.

$ 0.44

3

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

$ 0.44

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