There were 10 new additions to Barchart’s Top 100 Stocks to Buy on Monday. Of the 10, Arena Group Holdings (AREN) and Precipio (PRPO) stand out among the bunch of high-flying stocks.
Arena Group entered the list in the 89th position, while Precipio jumped into the fray in the 31st spot.
The former owns media brands such as TheStreet, Men’s Journal, Athlon Sports, and several others. It also helps other media brands grow their businesses by utilizing its digital media platform. The latter’s information platform helps physicians better diagnose what’s wrong with their patients, thereby reducing misdiagnoses.
Both are on Barchart’s top 100 stocks to buy list because of their momentum over the past year. While both utilize information and content to generate revenues, Precipio is the wiser long-term buy.
Here’s why I feel this way.
The Media Business Isn’t Easy
Anyone who works in the publishing industry knows that it is undergoing a lengthy transformation, one that has seen print-based media companies disappear by the thousands over the past decade as digital media has gained control.
Arena Group was formerly known as TheMaven until it rebranded in September 2021.
“The Arena Group saw an opportunity to sharpen its focus around building high-performing flagship brands that could cross-pollinate value for publishers within each vertical’s ecosystem. The results have been strong over the last year,” stated its Sept. 20, 2021, press release. “Digital revenue has grown approximately 91% year over year in Q2. Recurring subscriptions across all of The Arena Group’s properties now account for 55% of overall revenue.”
That all sounds very promising. Where is it today?
In mid-May, the company reported its third consecutive profitable quarter, generating $4 million in net income. That was up from a net loss of $103 million in Q1 2024. Most of the loss was due to the discontinuation of its Sports Illustrated media business in March 2024, which it had launched in 2019 under a licensing agreement with Authentic Brands.
In 2023, the SI business would have accounted for 41% of Arena Group’s revenue and 33% of its losses. In 2024, the discontinued unit would have accounted for 15% of its revenue and 92% of its losses. By Q1 2025, the discontinued operations had largely been eliminated from the income statement, resulting in a profit of $23,000. However, the discontinued unit’s current liabilities related to subscriptions and the damages sought by Authentic Brands in court added up to $96 million, or 39% of its total liabilities.
Thankfully for shareholders, the company announced a settlement with Authentic Brands on April 29. Although the financial terms were not released, the agreement resulted in the removal of $94 million in accrued liabilities from its balance sheet.
Not surprisingly, its shares are up 65% since the announcement.
What’s the Diagnosis?
I don’t usually opt for tiny micro-cap stocks over small caps. However, Precipio fits the bill because it operates in an industry that isn’t shrinking, unlike the media industry.
Precipio was founded in 2011 to create innovative technologies to reduce the misdiagnosis of cancer. It has since moved into other areas of healthcare.
The company went public in June 2017 by acquiring Transgenomic Inc., an Omaha-based diagnostic company, through a reverse merger. As part of the merger, Transgenomic shareholders received 160.6 million shares of New Precipio, giving them a 48% stake in the merged entity, with Precipio shareholders owning a 52% majority.
At the time of the merger, Transgenomic traded over-the-counter after being delisted from Nasdaq in February 2017. Since then, it’s been locked in a battle to maintain its listing. It undertook a 1-for-20 reverse split on Sept. 21, 2023, to remain in compliance with Nasdaq listing requirements. Its stock is up 200% in the 21 months since.
Why do I like it?
Let me be clear: Precipio is only for aggressive investors used to volatility and risk. I’m not here to suggest it is the perfect stock to own for the next decade. Stocks jumping 69 spots in the top 100 stocks to buy are often fueled by speculation alone. Fundamentals be damned.
In the trailing 12 months ended March 31, it had $20.0 million in revenue and a $3.0 million operating loss, the second-lowest operating loss in the past decade on 12 times the revenue.
“[W]e anticipate continued revenue growth and a return to positive operating cash flow by Q2 or Q3. We believe 2025 will be a transformative year in which scalable growth translates into improved results and long-term shareholder value,” stated CEO Ilan Danieli in its Q1 2025 press release.
There is no question the future success of Precipio depends on the growth of its net service revenue. In Q1 2025, it was $4.3 million, 51% higher than the same quarter a year earlier and 87% of overall revenue. Its first-quarter service revenues in the past decade.
While significant risk remains, the potential reward is also high.
The Bottom Line
I don’t know; maybe it’s because I’ve been writing for so long, but I’m skeptical of Arena Group’s ability to generate a consistent profit over the long haul.
The media business is not easy. Its job isn’t made any easier by the fact that it has $110 million in debt at interest rates ranging from 10.1% to 14.2%. In 2024, it paid out nearly $15 million in interest, pushing it from an operating profit to a pre-tax loss.
While it can continue cutting expenses to produce a more flattering income statement--its Q1 2025 operating expenses were half what they were in 2024--it’s going to take a lot more than that to eliminate its $475 million accumulated deficit. I don’t see that happening in my lifetime.
As for Precipio, we’re talking about a different kettle of fish. If I hadn’t told you the name of the company and what business it was in, and showed you its financials, you wouldn’t take long to make up your mind that it’s a loser. Perfectly understandable.
However, I can see why speculative investors are jumping in, generating share volume of over 100,000 in the past three days combined, which is well above its 12,834 30-day average.
If Medicaid and Medicare don’t mess things up, its third-party-payer growth in the first quarter was 36% higher than a year ago, accounting for 55% of its overall service revenue.
Where it gets interesting is in the products side of its business, which accounted for just 13% of Q1 2025 revenue. The company expects growth on the product side in the second quarter and beyond. With a gross margin of 51%, 900 basis points higher than its pathology services business, it won’t take much revenue growth to get to an annual operating profit.
I wouldn’t make this investment in a tax-advantaged account where you lose the ability to write off capital losses against capital gains. However, if it’s money you can afford to lose, Precipio may be close to a tipping point and worth a small bet.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
