PCSV Stock: Taking a Look After the 'Discovery Bubble' Bursts
The STEM education products company has fallen out of favor, but recent performance could prove to be a market overreaction.
MicroCapClub’s Ian Cassel recently published an interesting tweet about the “second-best time to buy great microcaps” is “after the discovery bubble bursts.” Interestingly enough, PCS Edventures! (OTCMKTS:PCSV), a name pitched by Cassel in 2024, and that presented at MicroCapClub’s 2024 MicroCap Leadership Summit in Coeur d’Alene, Idaho, could perhaps fit well into this “post-discovery bubble” category.
A year ago, PCS Edventures! and PCSV stock were flying high, or at least flying high relative to how poorly this purveyor of STEM Education products and programs for education providers was performing prior to its early-2020s turnaround.
However, for a variety of factors, including one that ties into the Trump administration’s aggressive efforts to slash government spending, PCSV has dropped nearly 57% from its 2025 highs, from 30 cents to 13 cents per share.
Yes, there is substance to the argument of the PCS Edventures! bull case is no longer fully intact. Still, it’s possible that this trailing twelve month price action represents an overreaction, and hence this stock is merely in the midst of a “post-discovery” pullback.
PCS Edventures!: Background
PCS Edventures! may sound like a relatively young company, but its origin story goes back nearly 40 years. Back in the 1980s, Idaho schoolteacher Patrick McShane launched his own after-school program, “Pat’s Computer School,” which focused on computer programming and robotics using LEGO and Fischertechnik kits.
From there, McShane and a group of investors formed PCS Schools, a venture that operated a chain of STEM-focused extracurricular learning centers. The current incarnation of PCS, PCS Edventures, was incorporated in 1994 as PCS Education Systems.
In the ensuing decades, PCS gradually shifted from operating its own learning centers, to developing and selling educational kits/curricula for schools and other institutions to operating their own STEM/STEAM after-school and summer camp programs.
During this time frame, the company went through numerous name and management changes as well, but by the mid-2010s, PCS Edventures! was floundering. Todd Hackett, an investor and lender to the company, took over as CEO.
In 2018, current President Michael Bledsoe took over operational oversight of the company. Together, Hackett and Bledsoe began the PCS Edventures! Turnaround. As discussed in the aforementioned MicroCap Leadership Summit presentation, Hackett and Bledsoe revamped the company’s operations, eliminating inefficiencies in raw materials purchasing and kit delivery timelines.
Under prior management, PCS Edventures prioritized expansion of its international business, at the expense of its domestic business. This is another area of improvement that Hackett and Bledsoe capitalized upon, shifting focus on growing the business by attracting more U.S.-based customers. PCS also focused on growing its education drone business, acquired via PCS’s acquisition of Thrust-UAV in 2016, as well as going from being dependent on resellers to sell its product, to directly soliciting business from school districts and other educational organizations.
The turnaround didn’t happen immediately. Covid-19 delayed the “payoff moment” for Hackett and Bledsoe’s efforts. Fortunately, the company was able to ride out these headwinds, thanks to a large customer order fulfilled just before the pandemic’s onset. In the early 2020s, the company returned to profitability, but the real “liftoff moment” for the company and for shares had yet to arrive.
However, soon after, it did begin to arrive, starting during the fiscal year ending March 2023. Thanks in large part to winning a contract with the U.S. Air Force Junior ROTC to provide educational drone products, sales grew 72% during FY2023, from around $4.07 million to just over $7 million. The USAF JROTC contract represented 37.3% of these sales.
Pre-tax earnings more than doubled, from $729,335 to $1.76 million. Thanks to a return to steady profitability, the company was able to adjust the value of its net operating loss (NOL) carryforwards, resulting in an additional $1 million being added to GAAP earnings, which came in at $2.77 million.
With these NOLs sheltering much of PCS’s earnings windfall from taxation, the company, flush with cash, paid off outstanding debt held by Hackett and other lenders. During FY2024, PCS reported further sales growth, with the USAF JROTC contract representing a far lower percentage of sales (13.7%).
FY2024 revenue came in at nearly $9.1 million, with pre-tax income of $2.9 million, and an additional positive adjustment to the value of PCSV’s NOLs resulting in GAAP net income of $4.4 million. Around the time of PCS’s Q4 FY2024 earnings release, shares were surging in price.
Bullish sentiment about the stock, disseminated by platforms like MicroCapClub, likely contributed to this “discovery bubble.” However, not too long after the Micro Cap Summit presentation, PCSV stock’s hot run came to an end.
PCSV Stock and its ‘Post-Discovery Pullback’
At first, one can chalk up the start of PCSV’s “post-discovery pullback” to a series of earnings releases that indicated that much of prior-year results were skewed by large contracts with key customers. Alongside the USAF JROTC contract, another key customer in the prior year has been the State of Iowa’s Scale-UP program.
This takeaway is on full display in PCSV’s results from the quarter ending Sep. 30, 2024. That quarter, revenue fell by mixed quarterly results may have played a role in PCSV’s dropoff in price during the latter months of 2024. During the quarter ending Sep. 30, 2024, revenue fell by nearly 40%, and earnings fell by nearly 70%.
Net of these contracts, the reported year-over-year sales growth, with revenue excluding USAF JROTC and Iowa Scale-Up climbing just 6% year-over-year during the quarter. Still, while positive growth is nothing to dismiss or sneeze at, investors want to see PCS Edventures! demonstrate greater levels of success attracting and retaining new customers, as seen from the number of consumer transactions in recent quarters:
More recently, concerns about how the Trump Administration’s “DOGE” cost-cutting efforts could affect school funding and hence demand for PCS Edventures! products, has also likely been a driver of PCSV’s sharp pullback to lower prices.
It’s tough to deduce the impact of “DOGE,” if any, as right now the latest fiscal results for PCV Edventures! are from the quarter ending Dec. 31, 2024. The December quarter is typically a slow one for PCSV, given how, like other education products companies, makes most of its sales in the quarters ahead of the coming public school year.
During this quarter, sales were up by more than 52.7%, but this largely due to deferred revenue recognition, itself a by-product of PCSV’s shift towards decreasing order fulfillment times. However, a lack of news regarding obtaining another big-ticket customer such as Air Force JROTC does call into question any bullishness about future revenue/earnings growth.
Valuation
There may be much uncertainty surrounding PCS Edventures! right now, but as I hinted at above, I believe that this has become well baked into the valuation of PCSV stock.
With changes in the valuation allowance for PCSV’s NOLs skewing GAAP earnings, it is difficult to use basic valuation ratios like P/E to assess the likely underlying value. It may be more appropriate to use EV/EBITDA.
Based on trailing twelve month (TTM) fiscal results, PCS Edventures! trades at an EV/EBITDA multiple of 7.2x. This places shares at the lower end of the valuation range among educational services stocks.
Most stocks in the space trade at EBITDA multiples north of 10. Granted, PCSV’s smaller size, various risks, and shorter history of consistent profitability help to justify this valuation discount.
Hence, it may be fair to say that PCSV is, at best, fairly-priced at current levels, in its current “as-is” state. However, looking at shares as a long-term growth play, there could be potential for shares to experience tremendous price appreciation, even on just a moderately-high growth resurgence.
Why the ‘Bubble Burst’ Was an Overreaction
Based on the factors driving PCSV to lower price since last Summer, it’s clear investors are expecting the following: that with a lack of new big ticket customers, a lack of new orders from prior big ticket customers, combined with rising uncertainty among school districts in light of the Trump administration’s desire to slash federal education spending, PCS Edventures! is experience a further drop in revenue and profitability this fiscal year.
However, while many signs point to such a scenario taking shape, I wouldn’t necessarily assume it’s a given this happens. For one, a January 2025 press release from PCSV, regarding the availability of Iowa Scale-UP funding for Iowa public schools that want to offer PCS’s educational drone program, suggests that the company could once again receive a large order from this customer.
In the coming weeks, PCS Edventures! is likely to release its results for Q4 FY2025, or for the quarter and full fiscal year ending March 31, 2025. If Iowa Scale-Up, the continued acquisition of small to medium-sized customers, and other factors enable the company to generate results on par with the prior year’s quarter, this could be well-received by investors.
Better yet, if PCS Edventures! unveils any sort of positive surprise, whether it be the landing of a new big-ticket customer, or any sort of commentary from management that assuages any DOGE-related concerns, this could have a dramatic impact on the price of PCSV stock.
The Bigger Picture
Don’t get me wrong. A strong earnings release may not send PCSV stock immediately back to prices north of 30 cents per share. However, this may be within the realm of possibility, over a longer but relatively short time frame.
In the quarters ahead, if PCS Edventures! continues to demonstrate steady revenue and earnings growth, the market may become willing to re-rate the stock, not just at a valuation on par with peers, but at a valuation reflective of its strong growth prospects.
As the company scales up in size, the company may even decide to re-list on a major exchange. This too would likely be a positive with regards to valuation. As also noted in the investor presentation, management plans to eventually make acquisitions, once PCSV has scaled up further.
As of March 31, 2024, PCS Edventures! still had $9.2 million worth of NOLs. Based on earnings, through December 2024 the company likely used around $1.2 million worth of them, leaving around $8 million left at the start of the year.
Given PCSV is likely still years away from using up all of its NOLs, I don’t see the company being sold anytime soon, unless management buys out the public float, in a way that doesn’t trigger Section 382 limitations.
Bottom Line
Based on statements made during the MicroCap Summit presentation, Hackett appears to be committed to holding his PCSV for the long-term, with the CEO noting his hopes that his children will one day inherit his position in the company.
Further indicative of management’s long-term bullishness is PCSV’s continued use of excess cash to repurchase stock. Back in April, the company’s board authorized the repurchase of up to 10 million shares, or 8.18% of the outstanding share count.
With nearly $3.6 million in cash at the start of the year, PCS Edventures! has the capital to conduct such an aggressive buyback. The board’s willingness to support a buyback, even as the company has moved into a new warehouse and is now tying more capital into inventory, also suggests insiders believe that the company will generate positive earnings/positive operating cash flow in the months ahead.
Even if earnings fail to reach prior-year levels, if PCS can demonstrate steady profitability, this could pave the way for shares to begin a recovery, followed up with a further move to substantially higher prices, as steady results give way to steady growth.
With all of this in mind, I have entered a small position in PCSV stock, and plan to investigate further, to confirm whether this is a bona fide “post discovery bubble” type opportunity.