Glad to hear that the CC was upbeat. I'm still kicking myself for missing it. Gotta find a way not to work all the time.|
Anyway, I've been running a few numbers based on the 2Q report, and find this stock underpriced, even considering the issues we're currently facing regarding overhead, margins, etc. The revenue in 2Q '98 was $6.5 MM, giving us a run rate of about $26 MM. I know that this business is a somewhat seasonal, but work with me for a moment. Assuming 7.1 MM shares outstanding, at $3 a share, that's a PSR of about .82 -- and that's without any OEM revenues. If year-to-year revenue growth is even in the neighborhood of 20%, that deserves a PSR of 2 or even 3, just to put us on par with other tech companies with that sort of growth. As you know, the Street will assign an even higher PSR if it thinks the revenue growth is sustainable. A PSR of 2 (based on the 2Q '98 run rate) would give us a stock price in the $7-$7.50 range. A PSR of 3 puts us at about $11.
I'm using PSR, of course, because EPS is difficult here. In the first place, we're losing money over the last few quarters due to the FOG acquisition. Also, it's hard to tell where margins will end up once the overhead is trimmed and the margins in the FOG unit get straightened out. When we do start posting positive EPS numbers again, I suspect that the market will re-notice this stock.
There are other problems, of course, For instance, lack of liquidity. Lately, the daily average has been less than $20,000 worth of stock a day. That's assuming that all trades are registered twice (seller --> MM --> buyer) because we're on the NAZ. Until we become a little more liquid, most mutual funds -- even small cap funds -- won't touch this stock.
Finally, I'm not sure that any analysts still formally follow this company. That's a hassle, but not too much of an impediment. Most analysts have a hard time looking past the next six months, and their "analysis" is often not helpful for that reason. As long as the revenue grows and the products remain strong, who cares if some pointy-head with a spreadsheet raises the projected EPS in year 2002 by a nickel? They're all too busy tripping over themselves to recommend YHOO and AMZN, anyway. Whatever.
OK. Venting complete. Hey, what do you folks think about the market? Short-term correction or beginning of bear market recession?