It is nice to see some folks giving critical thought to yesterday's release.
*I suspect that once an order is in, they can begin delivery almost immediately.*
Ramp up & delivery is a function of the markets VARL participates in. For example, base station VCO orders are traditionally awarded with a 7 to 9 month lead time. Military/Aero is actually close to a year or more with progress billings allowed so that shareholders like you and me get to see $$ going into VARL's coffers. With the subscriber market it should be a bit less than 9 months.
*Seems to me the estimate of how much additional income this generates is closer to:
. . . {SOME CALCULATIONS} . . .*
1) $1.7MM of yesterdays orders are to be received over 8 quarters
2) $0.75MM of yesterdays orders are to be received over 4 quarters
3) This works out to an additional $400,000 per quarter for the first four quarters, and $212,500 for the following four quarters.
In the calculations you presented you assume a 45% gross margin. In reality, the type of products in yesterday's release are very high margin, somewhere in the 55%+ range. An LMDS component sells for ~$15 versus a subscriber VCO component at ~$2. With the rudimentary model I plug numbers into I come out with roughly (includes fully allocated overhead – this works out to ~20% net margin for this product) $80,000, or $0.014, falling to the bottom line per quarter.
While this contract works out to more than five cents a year, that is insignificant compared to the affirmation that VARL has got some orders for some very complex components in the door. THIS IS WHAT WE NEED TO SEE MORE OF!
*It seems to me much of the reason Vari-L has been slow to grow in share value is because of the dilution that occurs.*
The dilution was due to an effort to raise cash in anticipation of entry into the subscriber business. I bet you will be a happy duck when VARL announces that they have landed a few gargantuan orders, AND that they have the cash right now to build additional capacity to meet production needs. It has been a long road, but the fact that VARL does have the cash hoard will speed their ascent into high volume production.
*REGARDING STREET ESTIMATES*
The folks at Multex Investor and the like do not have accurate estimates for EPS. Jim at EBI Securities has a reasonable estimate in the mid fifties, but I think the low end is around $0.60. Given that this company is on track to grow in excess of 25% this year, your PEG ratio implies a market value of $15.00. This however is woefully low considering that VARL will be growing at a very rapid rate and that the markets they will be serving have not been scratched. In other words a PEG analysis is nice to look at but it can not be used in this instance with any accuracy. |
