QST a microcap company that manufactures waste gas combustion systems, and is now trading at 0.8x times' Price/Book. In the 2Q, QST’s revenue declined by around 10% to $2.2M, compared to last year of $2.45M and EPS was -$0.02, flat compared to last year. The balance sheet is strong, with a net cash of $14.4M (market cap is around $24M). The company has been generating around $2M in cash flow in the trailing-twelve-months. There was a recent insider purchase, but the amount was not significant (around $50k in total). Overall, QST has some financial strength to endure a market downturn, but simply being public is a big cost to the company. Having said that, revenue growth in the last five years was quite cyclical, revenue in the trailing-twelve-month did not get back to FY2019 level, and the company is still operating at a loss. Based on consensus estimates, sales are expected to grow strongly, around 50% next year. We consider the name to be highly volatile, but there could be a floor of some sort given that most of the company's market cap is cash. The energy sector is its main customer and we are a bit surprised it hasn't done better considering this. The four new board members look fine, but we would like to be in the know of what happened internally. It is fairly unusual for a CEO to return after 'discussions' and get four Board members to flip. We think the new management needs time. Overall, we would not endorse this on size risk and cash flow alone. However, it is one to watch to see if any turn can be executed here. Sales overall are still half the level of nearly seven years ago, and this has to improve to generate any interest.
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