The stock gumshoe

From time to time, if the opportunity permits, I like to throw on my stock gumshoe hat and engage in a bit of investigative work.

One avenue that I have found helpful in in the past is the jobs market. If you can get your foot into the door of a listed stock as a job applicant, over the course of the interview process you can gain access to information that the average investor, or even the average fund manager, might never be privy to.

I was thus intrigued when I saw a role advertised at AI media several weeks back. I was familiar with the company, having noticed it list on the ASX not so long ago, and it struck me as an interesting little stock, and I also felt that I might be a contender for the advertised position.

These days interviews are mostly conducted remotely anyway, so it struck me as worth the while: in all probability I wouldn't even have to leave the comfort of my own digs. So I put an application in, in the hope of gleaning some information about the company.

My efforts met with success, and I was subjected to a preliminary phone-screening, following on from which I got an offer for an interview. I'd made it into the end zone. During the interview process, the interlocutors would have their attention set on interviewing me, but all the while I would be interviewing them.

The interview was conducted by a senior person from the finance department, as well as one of their HR representatives. The initial questions were the standard interview fare, and not generally not of much interest here. However, I did pick up that the systems used by the company were rather clunky and not exactly leading edge, which is perhaps not what you would expect with a company with a techy-name like 'AI Media'.

There comes a stage in the interview process where the applicant is asked if they have any questions about the role or the company, and this was really the moment I was looking for. I had a readied few carefully prepared questions for this moment.

Bear in mind that my comments below are based on my recall of the interview, and it is possible that I may not have remembered some of the details accurately.

One of the questions I asked them was 'What do you like about working at AI media?'.

I recall that the HR person responded by stating that 'it is chaotic...'. I don't think that the comment was meant in a pejorative sense, but even so, I did pick up a note of exhaustion as the person related their answer. It might have been my imagination, but it felt to me as if they were getting run off their feet.

After this answer, I followed up with another one of my questions, asking them 'Do you think that the company will be larger in two years than it is today?'

This time, it was the answer of the finance manager that stood out. What caught my attention was the first thing the manager stated in response was something like... 'We might be looking at an acquisition in North America within that time frame...' Presumably, they are currently on the prowl for more companies of the ilk of EEG enterprises, which they purchased in the first half of 2021, not long after the company listed on the ASX.

That answer struck me as curious for a number of reasons. Firstly, why was it that the first thing that the manager zeroed-in on was a potential acquisition? Does that imply that they are assuming that there will be no organic growth in the company within the next two years?.

This would seem to be at odds with the commentary from the company in the announcement of 16 November ('Response to research report'), where they stated that '...the Company is targeting positive operating cash flow in FY22 and beyond...'. When I look at that line now, it strikes me that it is an interesting choice of word that they have opted for. 'Targeting' is a pretty vague word, a bit like saying 'we'll do our best'.

Apart from that, acquisitions are seldom positive news for the share price of a company, at least in the short term. But this focus on a potential acquisition raises another question.

As is evident from a quick glance at the recent company announcements, AI Media is currently conducting a share buyback. If the company is indeed pondering an acquisition, why on earth are they buying back shares?.

Assuming that the answer from the Finance Manager was sincere, then my assumption would have to be that the share buyback is simply a tactic to attempt to prop up the share price, the aim presumably being to keep the share price nice and high, so that when the company embarks upon a capital raising to fund this overseas acquisition they then will be able to do so with as little dilution as possible.

If my above conclusion is correct, that does not strike me as a particularly good reason for a share buyback, especially for a company which has less than $18 million in the kitty.

Anyway, for better or for worse, my mind was made up about the company after the interview. It is possible that my impression was mistaken, but my gut-feeling is that for now, the company is at best a 'hold', and probably an 'avoid'.

I like some things about the company, and I might one day be a buyer of shares in the company, but not today. I would guess that the share price is very likely headed lower, and certainly, I would not be buying anywhere above the 0.600 mark. It is possible that the share price may fall much lower than even this over the next six months.