KSWS.
Ron,
I agree that KSWS is a buy. The stock is down on what has to be panic selling, and it has been pushed way below where it should be trading. Earnings estimates have come down a little for next year, but the stock is still trading at a ridiculously low 5 x next year's earnings estimate. Their inventory is a little high but this is because of the rapid revenue growth in the June 99 quarter. The company said in a press release on Oct 14:
..domestic future orders were off 1.1 percent at $105 million as of Sept. 30, versus $106 million last year at the same time, while overseas orders totaled $8 million, up slightly from about $7.5 million last year."
Gee, I just don't see any reason for the stock to be trading below it's book value of 13.5. Only 50 cents of the book value is intangible and they have $5.50 of cash. The price to sales is only 0.55 and I don't see where estimates for next year justify this low of a ratio. Gross margin of 44%, net margin of 12%, ROE of 35%...I could go on, but the present and future fundamentals do not justify the pounding that the stock got.
It's interesting to note that the short interest in KSWS increased dramatically the last three months from 784k in July to 1.3 million in August to 1.9 million in September. The new numbers for Oct are out and the short interest declined to 1.0 million. It sure looks like somebody knew that something was coming, and the short interest is now below where it was in August. Still, I think some more short covering is due and this should support the stock near the current price.
KSWS reminds me of IRF and VLSI last summer, both of which were trading below book value. There's no similarity between a semiconductor company and an athletic shoe maker, but the valuations are similarly out of whack. IRF subsequently traded from 4 to its recent 18 and VLSI traded from 6 to its buy out price of ~20. For those who buy KSWS now and are patient, I think the stock will return a double to quadruple over the next year or so.
Luck,
Dan |
