RMII Message Board - Msg: 11129470

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Technology Stocks : RMII

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To: E_K_S who wrote (307)	9/1/1999 12:22:00 PM
From: E_K_S	Read Replies (1) of 345

More observations: (1) Another SEC amended form 8 was filed 8/30/99 indicating that more stock should continue to overhang this stock based on another recent acquisition. My guess is that these new shares total 72K shares with a transfer basis around $12/share. (2) I reviewed the most recent conference call (on real audio from RMII's Web site) and noticed the following statements: a. SG&A had as much at $270K one time charges reflecting RMII's move to a larger facility. This may be a two quarter event. b. Gross margins were impacted by acquisitions and once they are consolidated into the new business structure, margins should return (back) to the 60% level. c. Our CEO mentioned a similar company in the business (AboveNet) that gets a much higher valuation than RMII and that RMII should be valued similar. He plans to talk to the street to point out RMII's undervalued financials. A review of AbovNet's financials and then compared to RMII's results I have to concur with our CEO on the undervaluation comparison. AboveNet on June 23, 1999 received a merger proposal from MFNX. biz.yahoo.com Here is a brief summary of the key valuation ratios for RMII & ABOV: Shares outstanding: RMII = 10 million ABOV = 33 million Estimated annual Sales: RMII: $5.2 million/quarter (est) $21 million/1999 ABOV: $8.3 million/quarter (est) $34 million/1999 Sales per share (annualized): RMII: $2.08/share ABOVE: $1.03/share Current Price/Sales (annualized): RMII: Price: $8.00 Price/Sales: 3.84x ABOV: Price: $34.00 Price/Sales: 33x Industry Average: (High growth Internet Start ups) Price/Sales: range: 10x-40x RMII Price @10x: $20.80 @20x: $41.60 @30x: $62.40 @40x: 83.20 Summary: MFNX has offered ABOV 1.17 shares of MNFX for each share of ABOV. MNFX is currently financed with debt, RMII has very little debt. ABOV has a price/sales ratio of 33x. RMII has financed their growth through equity. The equivalent price for RMII would value RMII at $92.40! Therefore at current levels RMII seems to me to be undervalued and once the overhang of stock is redistributed to new share holders, RMII could see a significant run higher. Sales must continue to grow, SG&A must stabilize at lower levels and once all new businesses are consolidated, gross margins should return to the 60% level. My price target for Q1 next year is $20 and perhaps $40 by FY end 2000. Today's price at $8 represents a price to sales ratio of 3.84x's with 60% gross margins is very cheap. Finally, management continues to grow this company and based on their current business plan and past experience (at Qwest), our CEO appears to be executing everything according to plan (so far!). EKS

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