First place, IBD is wrong. there were no charges in 1997. The company was clean every quarter, making .02, .03, .06, .06, for a total of $.17, fully taxed. The stock is selling for a low price relative to its sales and current $.24 earnings run rate for two reasons. Mgmt
made some mistakes in the 1995-1996 time frame which caused some writeoffs in 1996 - it takes a while to restore credibility. Second,
they have a lot of debt relative to equity as compared with their peers. This means a given amount of sales can make less earnings for them than for someone else with less debt, because of extra interest charges. However, distributors are typically cash generators and their debt has been coming down and should continue to do so (unless sales surge - good - and they need more working capital to support them).
I expect them to do $.25-.30 this year and hit a price of $3 or more as confidence increases. They are a national distributor with excess capacity in place, have already added two new companies to their lines this year, will probably add more, and are very well positioned among the players their size. |
