A few days ago, The Napeague Letter updated its in-depth Analysis of ABIX and it can now be found at napeague.com This Analysis makes a couple of important points about the Company.
Abatix needs only small improvements in revenues and gross margins to
generate a spectacular gain in earnings per share. A 10% growth in
revenues, stable SG&A, and a 1% point improvement in gross margins would
lead to an over 35% improvement in earnings per share in 1998.
As of Friday, August 15th, ABIX closed at $2.25, giving it an incredibly
low price earnings multiple of only 7.5, based on its current trailing
earnings per share of $0.30. This looks like a bargain price to me.
The pricing tools used by The Napeague Letter give ABIX theoretical
market prices ranging from $4.45 to $6.25, based on its current trailing
12 months earnings per share and a presumed growth rate of only 10%.
If we evaluate the stock in light of its projected 1998 performance,
we end up with theoretical prices ranging from $7.00 to over $10.00.
The Company may become an acquisition candidate. In its most recent
press release, it stated that "To improve shareholder value, the Board
of Directors is seeking an investment banker to review all options
available to the Company." While this may indicate that one of several
moves is under consideration, it is often a signal that a company is
interested in hearing purchase offers. A common tool for valuing a
company for M&A purposes is "Net Present Value of Cashflows"; this tool
values ABIX at a little over $4.00 per share, without factoring in any
impacts from synergy.
I think that it is extremely unlikely that, at a 7.5 price-earnings
multiple, the price of ABIX will decline significantly. For this reason,
my personal "game plan" is to accumulate ABIX at these low price levels,
continue to monitor the Company closely, and wait patiently for its
eventual price appreciation.
This price appreciation could take some time, or it could happen quite
quickly, in the event of an acquisition or from new interest by a
sell-side securities analyst, small-cap fund, or investment newsletter
with a larger circulation than TNL. However, I'm personally confident
that it will happen.
A complete and in-depth Analysis of ABIX can be found on the Napeague
web site at napeague.com. I encourage you to read the entire
Analysis as well as the Company's investor relations information and
its reports to the Securities & Exchange Commission prior to making
any decision to invest in this or any other Company. |
