So Many Babies Thrown Out With The Bath Water

$CXDO $NXGL $STRM $LCFY $DUOT

With the recent market crash, I’m re-evaluating my portfolio. Given the changing macro situation, are there any new risks that I should be using to discount my stocks? I will outline my analysis and include commentary from various management teams in my portfolio.

TLDR: As you can guess from the name of the article, any new risks (which I will outline below) do not nearly justify the ~50% drop in many of my investments. I’ll go through one company at a time.

Nexgel ($NXGL)

Product Lines

Silly George

The consumer products division, featuring Silly George eyelash products, maintains a favourable cost structure. Manufacturing costs are around $5 for products retailing at $40. Most of the costs show up in sales and marketing. Since COGS are so low, the initial 34% tariff would have had minimal impact. However, a doubling of COGS would be notable.

The situation depends on the geographies associated with the tariffs. If tariffs remain China-focused, Nexgel may lose some competitive advantage compared to those who source from other Asian countries. However, the situation is still evolving. If tariffs for China go down or the reciprocal tariffs for the rest of Asia resume, the competitive dynamic will return to the pre-existing state.

It remains uncertain how a potential recession might impact Silly George sales. Adam, CEO, was candid about having limited experience with recession impacts on prestige beauty. We both agreed that beauty products (notably smaller purchase items) are often the last line of products cut from family budgets. Currently, sales remain robust with no weakness in direct-to-consumer channels.

Gel Production

In contrast, the gel manufacturing division may strongly benefit from the tariff situation. The division has seen surging interest, with the CEO signing more NDAs in the last few weeks than "a year's worth previously." As Chinese alternatives become less competitive, Nexgel's domestic production grows increasingly attractive.

If they can convert this interest into deals, that would be a massive boost for the company. There is a tremendous amount of scale efficiency with this revenue stream due to low high fixed costs and low marginal costs; contribution margin for revenue is around 65%.

No notable recession risk with the product line.

STADA Deal

They’re in wait-and-see mode for their European-sourced Histasolv product. They have been considering importing bulk materials for domestic packaging to mitigate tariff impacts. However, they don’t need to rush anything, as they recently received a shipment and won’t need to re-stock until August at the earliest. With reciprocal tariffs being delayed, they may not need to do anything. The timing seems to have worked well here.

No notable recession risk here.

Financial Position

Nexgel appears financially stable and has no immediate capital-raising needs. The company remains open to opportunistic funding if tied to acquisition opportunities or market recovery. That said, it would have to be a phenomenal deal for them to raise at anything like these prices.

Crexendo ($CXDO)

At least for now, tariffs are centred entirely on products, and Crexendo mainly sells services, not products. TLDR - the effect will be minimal.

There would be some effect, though. Crexendo does sell some hardware. It represents about $5m of the total $60m revenue. That said, I see this as largely inconsequential to Crexendo investors. Why?

• No one is investing in Crexendo for its hardware business. If the business fell entirely off a cliff (not a plausible outcome), it wouldn’t be more than a temporary hiccup. It’s a small, low-margin revenue item offered to help round out the offering. Investors like Crexendo primarily for its fast-growing, high-margin software solutions business.

• Most of the increased cost will be handed down to the customers, meaning margins won’t compress much. While some customers may delay purchases, which could push sales out, phone systems are not exactly big-ticket items, and most are purchased with instalment payments. I have difficulty seeing companies that need communication devices delaying purchases because a $40 device becomes $100.

• All UCaaS providers have access to the same supply chains, so CXDO's competitors do not have a comparative advantage.

• Electronics shielded from tariffs? Unclear on whether Crexendo’s products fall in this category, but definitely possible.

Even in a recession, companies will continue to need to communicate. Their product is essential, and I think churn will remain minimal. Crexendo is well-positioned as the low-cost provider, so businesses considering transitioning to Crexendo might be motivated to move over faster under cost pressures.

On the positive side, if valuations are suppressed, it may help Crexendo to find an acquisition. I’d love them to deploy that cash pile.

Locafy ($LCFY)

Essentially no effect from tariffs. They are an Australian company offering services. They have not observed any adverse reaction to the current environment, and the core business is progressing well.

Many investors cite recessionary risks as a key reason to be wary of Locafy, because Locafy is an “AdTech” company, and expenses here will be slashed. This trail of thought may well be why the stock has dropped 60% in the last few months. I am very skeptical of the logic. Locafy's solution is one of the most cost-effective ways to drive revenue. In a recessionary environment, businesses look for ways to optimise marketing spend, not eliminate it. Solutions that offer better ROI, measurable results, and lower total costs than traditional advertising become more attractive. Furthermore, Locafy has recently shifted to a revenue-sharing model in many of its contracts. There are no upfront costs to cut, and even in a recession, businesses will not choose to cut profitable revenues to save COGS. There may be some effect, but I suspect it is limited.

I do not believe Locafy needs cash before they turn break-even (Q2/3?).

Duos Tech ($DUOT)

Tariffs

Tariff exposure appears limited. Higher steel and aluminium prices could impact the Railcar Inspection Portal business. However, most raw materials are sourced domestically, and management is taking steps to minimise input cost pressures.

On the Edge Data Center side, their manufacturing partner, Accu-Tech, has proactively adjusted their supply chain to reduce reliance on imported components that could be affected by tariffs. They have secured domestic and tariff-exempt sourcing for critical inputs like steel framing, cooling units, and cabling, where possible. While there is still some risk of general materials cost inflation, particularly if broader tariffs drive up steel and aluminium prices across the market, the company expects any increases to be modest and absorbable within their pricing models. Given the strong demand for Edge infrastructure and the high-margin profile of these pods (targeted gross margins in the 70%+ range), small input cost fluctuations should not meaningfully affect the business model or rollout pace.

The Power division has no tariff exposure. The turbines and generation assets it manages are already in the U.S., and its current focus is entirely domestic. International expansion may introduce minor risks, but this is not an immediate concern.

Recession

Recessionary impacts are mixed but manageable. The Rail business could experience further slow adoption, as railroads are historically slow-moving, and capital spending could tighten. However, the Rail division is now a smaller part of the overall company strategy, and no one expects it to grow anyway.

Edge data centres are in strong demand, especially in rural areas where Duos is focused. Demand for faster internet connectivity and Edge computing capacity is largely non-cyclical and may even be indirectly supported by government funding initiatives.

The Power division may benefit from a recessionary environment. Data centres, critical infrastructure, and utilities will continue prioritising reliable power supply. Duos’ behind-the-meter power services for AI and hyperscale data centres are highly strategic and should be resilient to macro softness.

Cash

Duos appears financially stable. They ended 2024 with $6.3 million in cash and minimal debt, and management expects to reach breakeven in the second half of 2025. While they plan to raise $10–$15 million to accelerate edge data centre deployments, they do not need to raise capital to fund ongoing operations. The raise is purely opportunistic to support growth, not survival. They can time any raises to when the general market or their stock is stronger. They are not in a rush on this front, and are loath to raise at these prices.

Streamline Health ($STRM)

I haven't had the chance to speak with management yet, but this is arguably the simplest investment in my portfolio to analyse. Streamline provides revenue cycle optimisation services to healthcare providers, a sector about as recession—and tariff-proof as it gets. Healthcare will continue business as usual regardless of economic conditions, and ensuring providers get properly reimbursed becomes even more critical in tighter financial environments. Of course, this still hasn’t stopped the stock from dropping precipitously.

Streamline Health ended October 2024 with $754,000 in cash and $11.3 million in outstanding debt, including $2.25 million in current term loan obligations and $4.13 million in notes payable. While they remain slightly cash-flow negative, management continues to expect positive adjusted EBITDA in the first half of 2025 and believes they have sufficient resources to reach breakeven without raising additional capital.

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Author’s Disclosure: I have beneficial long positions in the abovementioned companies through stock ownership, options, or other derivatives. I may buy or sell any of the stocks while you are reading this. I wrote this post myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. I am not a licensed securities dealer, broker, US investment adviser or investment bank.

Breakout Investors’ Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Breakout Investors as a whole. Breakout Investors is not a licensed securities dealer, broker or US investment adviser or investment bank.