Interesting and persuasive James.Gotta jump in here with my own quirky take on valuing Ampex.Under 3 it was a compelling value play. Eventually, right or wrong, I came to see it as a growth play - which is why I held it through the surge, and is why I hold it now. Through all the mists of land sales, one time royalty payments ( the reason for negative '96 earnings comparisons), the Ampex media sale ( does any shareholder still believe the PE is 4?), special charges for moving and litigation etc., AXC's actual profits from manufacturing activities have increased from $.04 per share in '94 ... to .09 in '95 to looks like at least .20 this year. They have achieved that by cutting expenses and concentrating on their core products, and they have achieved it without yet increasing total revenues. When revenues actually begin to grow , and in my opinion that will be in '97 and '98, things will get better quickly.Assigning a PE of less than one half of their demonstrated 2 year growth in manufacturing profits to those profits alone gives me 50 X .2 - or a stock worth at least 10 bucks. Hardly infallible, but that growth formula has served me well.
Ampex is small cap so, to me, the questions include: Are they going to stay in business? Are they making money? Yes and yes. Do they have salable products? Yes. How are the margins? At over 40%, spectacular for a storage company. Are they careful about expenses? Oh yeah. Are there catalysts to probable growth present? Yep .... DST momentum and development coupled with the growth of aggregate demand for visual storage, royalty litigation potential, and the potential of KM and all of those patents ... which, in my opinion, the market is letting us have for free right now.
So I think I have an undervalued stock on my hands. There are no certainties in the market. Best anyone can do is to tilt the odds in their favor ... so most of the inevitable suprises will be pleasant ones. With AXC, I'm one investor that really likes the odds. |
