Rimini Street, Inc. (RMNI): Are Wall Street Analysts Crazy About This Value Penny Stock Now?

We recently compiled a list of the 10 Best Value Penny Stocks to Invest in Now. In this article, we are going to take a look at where Rimini Street, Inc. (NASDAQ:RMNI) stands against the other value penny stocks.

The US market has been resilient over the past years despite higher interest rates, however, recent reports showed a sharp decline in the growth of the U.S. job market. According to reports from the Labor Department, the economy added just 114,000 jobs in July compared to 179,000 in June. This marks a sharp drop in employment generation from 482,000 in January 2023, raising the unemployment rate to 4.3% in July 2024, the highest level in nearly 3 years. The significant slowdown in hiring can potentially make the economy vulnerable to recession and therefore leads to an ease in monetary policy guaranteeing an interest rate cut in September. Economists are calling for a 50 basis point reduction in borrowing costs.

With the current uncertainty in the market and delay in rate cuts, investors are worried about a possible recession. The question is should investors pick penny stocks to diversify their portfolios? Penny stocks, though cheap, are without any doubt risky investments with a high rate of volatility and are even more sensitive to monetary policy changes. A higher interest rate negatively affects stocks' earnings performance because these stocks are mostly running on debt and, therefore, can benefit from a possible rate cut in September 2024.

Moreover, these stocks are prone to speculative trading and scams, and therefore, are suitable for investors that can do diligent research and have a high tolerance for risk. However, not all stocks are the same and investors may yet benefit from long-term investments in high quality penny stocks with strong fundamentals. Value investing is an investment strategy focused on finding stocks that are being traded for less than their intrinsic or true value. In other words, value stocks are undervalued by the market and can be rewarding long-term investments once the market realizes their true value.

Investing in small-cap penny stocks is no doubt risky owing to their high volatility and low liquidity, however, using the value investing strategy one can generate long-term profits from investing in these stocks.

Investing in Small-cap Stocks in 2024

Most penny stocks have small market caps. Large-cap stocks generally dominate the market outperforming small-caps, and last year was no different as the large-cap stocks beat small-cap stocks by an average of 9.6 percentage points. Moreover, in 9 out of the last 10 years, large caps outperformed penny stocks, however, small caps showed competitiveness back in the days of the internet boom, when the dot-com bubble was breaking in the period 1999 to 2004.

There is hope for a small-cap rebound in 2024, and that is because the historical trends tell us that after nearly a decade of underperformance, the tables turn and small-caps, which include many penny stocks, can rebound. Moreover, in the fourth quarter of 2023, penny stocks showed a recovery in growth and this could set the stage for a renaissance for the small-caps in 2024.

In a recent interview with CNBC, Fundstrat's head of research, Tom Lee expressed optimism about the potential rise of small-cap stocks in 2024 owing to the softening of inflation in June. Tom Lee further discussed the performance of the small-cap stocks that rose 30% in 8 weeks from October to December 2023. Lee believes that the current rally can be even more substantial compared to last year as it's driven by factors like larger institutional short positions, small-cap even more oversold, and valuations like median P/E at 10 times 2025 earnings. In addition, June’s Consumer Price Index has declined to its lowest level in the last 3 years, this can lead to the feds cutting the interest rate expected in September 2024. According to the estimates of Tom Lee, in case the interest rate is cut down, the small caps can gain as much as 50% in 2024.

Secondly, presidential elections have been historically in favor of these stocks, research shows that seven out of eleven election times, the small-cap outperformed by an average of 2.68 percentage points.

The recent consumer price index data released in June 2024, suggests a deceleration in inflation, the prices are getting stabilized particularly in core consumer segments such as shelter and food. According to the latest Inflation report, the Personal Consumption Expenditure index (PCE) rose by 0.1% from April matching the Wall Street expectations. Furthermore, the report shows a growth of 0.5% in personal income in the U.S. which is up by $114.1 billion. This potential relief to consumers can stabilize the US market and might influence the Federal Reserve's Monetary policy decisions in favor of small-cap by cutting interest rates as expected by the end of 2024.

Methodology:

To compile this list of the 10 best-value penny stocks to invest in, we used a screener to narrow down penny stocks trading under $5 on the basis of relatively lower forward p/e ratios compared to their respective industry averages. We further screened these stocks by using metrics like institutional ownership of greater than 40% and ensured that the companies had positive upsides based on analysts' consensus.

After shortlisting the stocks based on the above-mentioned value metrics, we ranked those stocks based on hedge fund sentiment towards each stock. To rank the penny stocks, we assessed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

A businessperson in a technology center, surrounded by software engineers.

Rimini Street, Inc. (NASDAQ: RMNI)

Number of Hedge Fund Holders: 13

Rimini Street, Inc. (NASDAQ:RMNI) is a software application company that provides software products, services, and support to enterprises. The company was founded in 2005 and offers a third-party software solution including support, managed services, and, maintenance for software companies like Oracle, IBM, SAP, Salesforce, and AWS partners.

Rimini ONE is a service program that offers a unified set of integrated systems that can run, manage, support, configure, protect, and optimize its client’s database and technology apps.

Similarly, Rimini Connect is an interoperability solution to connect email systems, operating systems, and browsers. Rimini Protect is a personalized security service solution. In addition, there is Rimini support, Rimini watch and Rimini consult service solutions for software enterprises.

Rimini Street, Inc. (NASDAQ:RMNI) serves clients in nearly 150 countries and has over 2100 employees. The company’s active clients have grown by 1.1% to 3,040 in Q1 2024 from 3,007 same period last year. Rimini award-winning software support has an average engineered response time of less than 2 minutes and achieved an outstanding client satisfaction score of 4.9/5. However, the stock is currently undervalued with a trailing P/E ratio of 12.88 compared to the industry’s average P/E of 44.36.

Rimini Street. Inc. (NASDAQ:RMNI) has continued to streamline its operations and adopt innovative solutions to better serve and expand its clients. Early in June 2024 Ricoh Company Limited, a Japanese-based multinational firm that processes images and makes electronic products chose Rimini Support and Rimini Protect to ensure the safeguard of its Oracle EBS and database environments.

In addition, the company is focused on diversifying its portfolio by launching new services to expand its support and services to a broader scope. For instance, in February 2024, Rimini Custom was launched and is poised to be a game-changer for enterprises that need to focus their scarce IT resources on innovations and transformations while ensuring that the current database continues to support mission-critical operations. Rimini Custom helps organizations lower operating costs and complexities involved in heterogeneous IT environments and allows them to narrow down their focus on higher-value projects.

In the first quarter of 2024, Rimini Street, Inc. (NASDAQ:RMNI) reported a revenue of $106.7 million that improved marginally by 1.2% compared to $105.5 million for the same quarter last year. Whereas the annualized recurring revenue was $415.8 million for the first quarter and grew 1.8% YoY. However, the management noted that the total revenue was affected negatively by 0.8% due to FX movements.

Although recurring sales were in line with the quarter growth plan, new client sales were a bit demanding. Several new sales failed to close in the quarter and slipped to the next quarter. To address these challenges, the company held a comprehensive sales kick-off in January to train and develop the sales skills of 400 global revenue team members.

In addition, a major headwind faced by Rimini Street is a 14-year-long legal battle with Oracle. The company is still facing ongoing litigation with Oracle which has led to uncertainties and affected guidance on future financial results. In  2010, Oracle Corporation, a database software and cloud-based solution provider sued Rimini Street accusing the company of infringing its copyrights and engaging in unfair business practices.

Oracle alleged that Rimini Street illegally copied Oracle’s software and provided unauthorized support services to its customers. In defense, Rimini Street argued that its practices were legal as it provided a low-cost support service within the bounds of fair use and complied with the licenses held by its customers who were unsatisfied with Oracle’s costly service. In 2014, Rimini filed a declaratory judgment action aka Rimini2 declaring that it had made changes to its software support practices.

In 2015, the jury found Rimini Street liable for copyright infringement and awarded Oracle $125 million in damages. The decision was challenged by Rimini, and the court made some changes and reaffirmed some damages while modifying others.

Oracle withdrew its monetary relief claim of $1.4 billion as the court rejected Oracle’s arguments that its license agreements prevent Rimini from documenting its own operations and technical specifications.

Last year, Nevada Federal Judge Miranda Du found that Rimini Street once again violated Oracle’s copyright claims. The judge ordered a permanent injunction limiting Rimini Street’s long-term support practices. The court issued further orders that the company must issue a press release and provide its customers with true information regarding misleading marketing campaigns.

The company disagreed with many points of this ruling, appealing the injunction at the court of appeals. As of now, an administrative stay of the injunction remains in effect. The appeal is pending and may or may not turn in favor of the company. However, the uncertainty of events may yet impact the stock's share price in the future.

According to Insider Monkey’s database, 13 hedge funds held stakes in Rimini Street, Inc. (NASDAQ:RMNI) and Adams Street Partners held the largest stake of over 23.56 million shares with a value of $76.82 million.

Overall RMNI ranks 4th on our list of the best value penny stocks to buy. While we acknowledge the potential of RMNI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RMNI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.