Hi Paresh,
personnally, I think HWP results can't help...
momentum players who entered the stock in masse
towards the end of last year left in search of
greener pastures (e.g. AMAT). Negative feelings
toward the sector in general might create a
buying opportunity for those who hold a little
cash and are keeping a close eye on APCC. I'm
looking to add to my position in the next few
weeks if there is weakness in the stock of this
nice company.
Here's why (this is an article I lifted from a
feature section of the Motley Fool and it may
actually have already been posted on this thread):
Tuesday, March 25, 1997
Welcome to our latest Foolish feature, the Daily Double,
sponsored by eBroker. Each market day, we'll be presenting
a stock that has doubled in the past six months. For more
information on this column, please read "What is the Daily
Double."
American Power Conversion Corp.
(Nasdaq: APCC) (N) (S)
Phone: 401-789-5735
apcc.com
Price (3/25/97): $23 1/8
HOW DID IT DOUBLE?
A one-year stock chart proves that there's no surge
protector that can keep electrifying earnings from jolting a
stock price higher. These shares have nearly quadrupled
from a mid-July low of $8 1/2 to a recent high of $31 1/2 on
three quarters of better-than-expected earnings.
During the fourth quarter, revenues rose 48% to $210
million versus the year-ago period, and earnings came in at
$0.32 a share, beating analyst estimates of $0.28. For the
year, revenues were up 37% with EPS up 32%.
With all this great news, why has the stock retraced some of
its recent gains? When the company announced earnings on
February 11th, it indicated that revenue growth will likely
slow this year to 20% to 25%, as the overall market for
computing and networking products takes a breather.
Yet PaineWebber analyst Stephen Smith told Dow Jones
News at the time that management is known for making
overly conservative projections. Last year, the company
projected FY96 revenue growth would be just 20% as well.
BUSINESS DESCRIPTION
Based in West Kingston, Rhode Island, American Power
Conversion is the world leader in the design, manufacture,
and marketing of power protection gear for computers and
telecommunications equipment. This includes everything
from that no-frills surge protector your foot is probably
resting on to much more elaborate and expensive
uninterruptible power supply (UPS) units, power
conditioning equipment, and related software.
The company's surge protection products (including the
PowerManager Power Center, ProtectNet, and SurgeArrest)
basically buffer electronic equipment so it isn't damaged
when the electrical power surges. The UPS line (including
Back-UPS, Matrix-UPS, and Smart-UPS) provides
automatic backup power. The company primarily markets
its products to computer value added retailers (VARs) and
network integrators, who recently voted American Power
Conversion's UPS products number one in a
Computerworld magazine survey. On March 12th, the
company announced its new Smart-UPS XLT designed
specifically for the telecommunications industry.
FINANCIAL FACTS
Income Statement
12-month sales: $706.9 million
12-month income: $92.4 million
12-month EPS: $0.98
Profit margin: 13%
Market Cap: $2.2 billion
Balance Sheet
Cash: $153.2 million
Current Assets: $424.1 million
Current Liabilities: $106.3 million
Long-term Debt: N/A
Ratios
Price-to-earnings: 23.8
Price-to-sales: 3.1
HOW COULD YOU HAVE FOUND THIS DOUBLE?
The company faced increased competition in 1995, as IBM
allied with the company's rival Best Power, and
Hewlett-Packard started making its own UPS units. Plus,
the company's management was looking for a slowdown in
1996. The stock lost its energy.
Yet any company that's turned in such strong and
consistent growth over the last five years should have
attracted bargain hunters looking for the first sign that
business was better than expected. That's especially true
given the long-term growth of the computer and
telecommunications industries and the special need for the
company's products in overseas markets where electrical
connections can be unstable. The stronger-than-expected
June quarter results announced in August could have
provided that sign of an ensuing double over the next six
months.
WHERE TO FROM HERE?
Analysts' estimate that American Power Conversion will
see $1.23 per share in earnings this year and $1.48 in 1998.
A PEG of 0.93 suggests that the stock isn't an electrifying
steal at these prices, but a YPEG based on estimated
long-term growth of 27% would put fair value at $33,
making these shares look rather attractive now. On the other
hand, those earnings estimates put near-term growth at just
23%.
Still, if management is again making overly conservative
estimates, the recent weakness in the stock might be
offering investors a real opportunity.
This company has no debt; indeed, it's been gathering cash
over the last year. It has new production facilities in Ireland,
the Philippines, and Mexico. It's a world leader, with a new
partnership with Dell Computer announced in
mid-February. American Power Conversion is entering new
market categories. Plus, more than a third of sales come
from fast growing international markets. Finally, it's got an
enviable track record and outstanding net profit margins.
This one is probably worth watching, particularly for further
weakness in the stock price or unexpected strength in
earnings. Both seem possible.
-Louis Corrigan (RgeSeymour) |
