Here is my updated DGLY DD. IMO DGLY will hit $20 sometime in 2008. That is roughly a triple from the $7.27 close on Friday.
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siliconinvestor.com
Overview
Digital Ally, Inc. engages in the design, development, manufacture, marketing, and sale of video surveillance products for law enforcement, homeland security, and commercial security applications. It primarily focuses on development of digital video imaging and storage products. The company's products include digital in-car video system and digital video flashlight. These products allow self-contained video and audio recording onto flash memory cards that are incorporated in the body of the flashlight. It also enables original equipment manufacturers in designing and manufacturing digital video subsystems to customer specifications. The company was founded in 2003 and is headquartered in Leawood, Kansas.
Products
Their DVM-500 digital rearview miror video camera sells for approximately $4,000. The price for their DVF flashlight which contains a video camera is $1595. Both products are sold heavily to the law enforcement community. Pictures of these devices are shown below.
Investment Thesis
I think that DGLY represents a very good candidate for a multi-bagger. Here is a summary of my investment thesis:
1. DGLY has been rapidly growing revenue and earnings for the past 6 quarters. That is a trend I expect to continue. Since GM is 69%, any additional sales drop rapidly to the bottom line. I'm estimating Q4 EPS at $0.10 and 2008 EPS at $0.70. With a PE of 30 I expect DGLY to reach at least $20 sometime in 2008.
2. They have two new products coming shortly. The motorcycle retrofit for the RV mirror will go into production in Q1. The school bus and mass transit product will go into production in Q2. Also, the flashlight product sales are expected to grow rapidly in Q1.
3. DGLY hasn't begun to tap the military markets. They have John Ashcroft on their advisory board. Right now they have their hands full with current initiatives but they expect to start taking advantage of their John Ashcroft connection in Q3'08.
4. They are rapidly growing manufacturing capacity. Last quarter they sold somewhere in the vicinity of 1,250 units of their products. As disclosed in the Q2 conference call they are growing their manufacturing capacity from 400 units to 1,000 units of the rearview miror video camera per month. Additionally, they are growing their capacity to 1,000 units of the flashlight product. The expansion is expected to complete in Q1. So, they are increasing manufacturing capacity to 2.5 times their Q2 capacity! If they fill their capacity I estimate that they will have an annual EPS of $1.05/share! With a PE of 30 they would have a price of $31.5/share. I think they will fill their capacity in 2009.
5. On January 2, 2008 they join the Nasdaq. Usually companies only uplist from the OTCBB when they know they have an improving future!
Revenue
DGLY has had some huge revenue growth due to the introduction of their products. Since they have exceptional gross margins of 69%, additional sales drop rapidly to the bottom line. Here is the history of their revenue:
Quarter Revenue
Q1'06 $0.01M
Q2'06 $0.8 M
Q3'06 $1.4 M
Q4'06 $1.8 M
Q1'07 $3.4 M
Q2'07 $3.8 M
Q3'07 $5.1 M Major Orders
DGLY puts out PRs for major orders that they receive. Each DVM-500 (rearview mirror) sells for roughly $4,000. The DVF (flashlight) sells for $1595. Keep in mind that these PRs are for major orders and do not include small orders which are a very large part of sales.
$5.1M international - 11/29/07 - Est. 1275 DVM-500 - siliconinvestor.com
Canada - 10/02/07 - 56 DVM-500 - siliconinvestor.com
Arkansas & West Virginia reorders - 10/02/07 - 74 DVM-500 - siliconinvestor.com
Birmingham, Alabama - 75 DVM-500 - siliconinvestor.com
Mississippi - 08/02/07 - 300 DVM-500 - siliconinvestor.com
Mexico - 07/31/07 - 50 DVM-500 - siliconinvestor.com
Arkansas - 07/30/07 - 70 DVM-500 - siliconinvestor.com
Wisconsin - 07/30/07 - 50 DVM-500 - siliconinvestor.com
Earnings Reports
Q2'07 siliconinvestor.com
Q3'07 siliconinvestor.com
Earnings Estimates
Q4'07 - siliconinvestor.com
2008 - siliconinvestor.com
Charts
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