Insignia Systems, Inc. (ISIG) is an in-store and digital advertising solutions provider. With a $32 million market cap, ISIG is a  small player in the advertising industry. However, the company has been catching meme investors’ attention lately due to its high short interest.

ISIG gained 292.5% in 2021 and 155.6% over the past three months. December 2021 marked the best monthly performance of the ISIG since its stock market debut in 1991. However, the stock has lost 15% so far in 2022.

Here’s what could shape ISIG’s performance in the near term:

High Short Interest

Of the 922,100 shares float, 565,000 shares are currently sold short, translating to a 61.27% short interest as a percentage of float. The short interest has increased by 2503.7% over the past month. Over the past two months, 608200 shares have been sold short. Approximately $9.28 million worth of ISIG shares has been sold short as of December 15, 2021. The stock has a short interest ratio of 0.2.

ISIG has been frequently mentioned in popular Reddit forums r/wallstreetbets and r/wallstreetbetsnew. Many meme traders expect the ISIG short squeeze to be equivalent to the GameStop Corp. (GME) and AMC Entertainment Holdings Inc. (AMC) combined. ISIG is the third most ordered stock by individual Fidelity investors. Moreover, Fintel ranks ISIG as the most likely to experience a short squeeze in the near term.

Negative Profit Margins

ISIG’s trailing-12-month EBITDA margin and net income margin are negative 21.92% and 17.54%, respectively. Its levered free cash flow margin is negative 5.1%. In addition, the company’s trailing-12-month ROE, ROA, and ROTC are negative 54.63%, 37.15%, and 39.77%, respectively.

ISIG’s trailing-12-month gross profit margin is positive. However, its 18.54% gross profit margin is 64.1% lower than the industry average of 51.66%.

Poor Financials

ISIG’s net sales decreased 21.2% year-over-year to $3.50 million in the fiscal third quarter ended September 30, 2021. Gross profit fell 2.5% from the year-ago value to $545,000. Operating loss widened 7.2% from the same period last year to $925,000. Net loss widened 4% from the prior-year quarter to $921,000. Loss per share came in at $0.52.

POWR Ratings Reflect Uncertainty

ISIG has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

ISIG has a grade of C for Value. Its trailing-12-month EV/Sales multiple of 1.57 is 37.7% lower than the industry average of 2.51. However, the stock’s trailing-12-month Price/Book ratio of 7.32 is 212% higher than the industry average of 2.35.

Of the 14 stocks in the D-rated Advertising industry, ISIG is ranked #8.

Beyond what I have stated above, view ISIG ratings for Growth, Sentiment, Stability, Momentum, and Quality here.

Bottom Line

ISIG witnessed a stellar price rally in 2021, despite its weak fundamentals and negative profitability. However, the stock has lost momentum in the new year, with a double-digit slump year-to-date. Thus, I believe investors should wait until ISIG’s profit margins improve before investing in the stock.

How Does Insignia Systems, Inc. (ISIG) Stack Up Against its Peers?

While ISIG has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Transcontinental Inc. (TCLAF), Interpublic Group of Companies, Inc. (IPG), and Tremor International Ltd. (TRMR), which has a B (Buy) rating.

ISIG shares were trading at $20.12 per share on Wednesday afternoon, up $2.23 (+12.47%). Year-to-date, ISIG has declined -12.82%, versus a -1.33% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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