On Monday, shares of Troika Media Group (NASDAQ:TRKA) spiked over 30% on unusual retail interest. Over 100,000 million trades had taken place by lunch.

Ordinarily, I’d ignore such moves. The attention spans of social media-based investors can feel fleeting at best — a fact that CNBC reporters decided to prove in 2021. And plenty of popular stocks have already fizzled this year. Artificial intelligence contractor BigBear.ai Holdings (NYSE:BBAI) has already lost half its gains from January 2023. By the time you hear about the next meme stock, chances are good that it’s already too late to buy.

But Troika Media Group is different. Because this time, the retail crowd might have found a lasting winner.

TRKA Stock: A Diamond in the Rough

Troika Media was born out of a surprisingly ordinary reverse merger. In March 2022, the shell company performed a leveraged buyout of Converge Direct, a media and marketing company that generated $23 million in adjusted EBITDA in 2021. And today, the combined firm is expected to produce around $22.8 million in operating profits. The company counts Converge’s former chief operating officer, Sadiq (Sid) Toama, as its new CEO.

Usually, a firm like Converge Direct would be worth somewhere between 4x-6x EV/EBIT in private markets and 5x-10x EV/EBIT in public ones. The digital customer acquisition industry is surprisingly stable, and these mid-tier valuation multiples reflect that reality. Indeed, Converge’s reverse merger valued the business at $125 million, roughly a 5.6x EV/EBIT multiple.

But markets have since completely mispriced the stock. Since acquiring Converge Direct, Troika’s shares have fallen from $1 in March 2022 to 10 cents. Today, TRKA’s 40-cent share price still values the enterprise at only $60 million, a rock-bottom 2.6x EV/EBIT multiple!

That means Troika Media could be one of the most mispriced penny stocks of the year.

Can TRKA Stock Hit $1?

Former shell companies like Troika Media often trade for unusual discounts because of their misleading financial history. Converge Direct’s income doesn’t show up until March 2022. To hedge funds and other number-crunching investment firms, Troika Media is a company that managed to “lose” $38.7 million last year on impairment, merger and restructuring charges after buying a $125 million millstone.

The stock is also highly shorted, making it relatively unattractive to most institutional investors. Before this week’s rise, investors were short selling around 23% of TRKA’s shares. And by noon on Monday, no short shares were left, according to data from Fintel.io. No mutual fund manager wants to explain to investors why they’re buying shares of a short squeeze.

Yet, these same factors make the stock extremely attractive to value investors. Bottom-up buyers will quickly realize that Troika could earn up to $35.8 million in operating earnings by 2024, thanks to its acquired Converge business. And even with around $65 million of long-term debt remaining from its leveraged buyout, Troika’s 40-cent shares are clearly too cheap.

In the most aggressive case, a three-stage dividend discount model using sell-side estimates pegs the company’s value at $13, an astonishing 32x upside. That’s because $44 million annual free cash flow in perpetuity from a service-based firm is worth around $940 million, even after discounting for interest rates and bankruptcy risk.

For a more “normal” case, we’ll assume sell-side analysts are too wildly optimistic (as they often are). Let’s be cynical and assume that free cash flow will max out at $18 million per year. We’ll also put in a 35% probability of failure, since there’s no guarantee that CEO Sid Toama can continue his string of successes. That produces an equity value of $360 million, or $5.30 per share. Still pretty good, and reflects a reasonable premium for Converge Direct’s now-public shares.

And let’s say we look at the “bear” case. Here, Troika is an outright scam, and it runs off with all our money. That’s a 40-cent downside.

Putting a 20%-40%-40% chance in each scenario gives us a final fair value of $4.70… suggesting that retail investors might be onto something BIG.

What Are the Risks of TRKA?

There are plenty of risks in buying a stock like Troika Media for this head-spinning return potential.

First, my $4.70 estimate is only an expected value that hides a significant chance of total loss. Reverse-merger companies are often risky since high-performing startups typically use standard IPOs rather than backdoor mergers.

Next, Converge’s figures are all self-reported and designed to look good. Metrics like “adjusted EBITDA” are always red flags, since those “adjustments” usually remove everything that loses money. Stock grants and R&D costs are easily swept under that rug, meaning that my $18 million free cash flow estimate might still be too high.

Finally, Troika’s penny-stock status makes it inherently at risk of delisting. The firm is already relatively small. And with only around 150 employees, few will notice if the firm vanishes entirely.

Still, Troika’s 40-cent share price ignores any profit potential of its $125 million Converge acquisition. This time, social media investors could have found a 1,000% stock.

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Read More:?Penny Stocks — How to Profit Without Getting Scammed

On the date of publication, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.