jim,
here's my view on GE vs. PSIX:
GE: 1) many industries, 2) existing for many years, 3) continuously profitable.
debt is good because you have this tax shield (tax savings on interest payments --if you're profitable), but that's as long as earnings are stable to satisfy obligations (the more diversified, the more stable a company may be). the more years of stable earnings (history), the more debt you can accumulate and, as a manager (CEO...), be comfortable with.
so, bottom line, the only way they can survive is if they can pay their interest and stay above the minimums debt holders require in their covenants (such as sales level, profit margin, etc). because they eat so much cash, they can't continue to make loses and need to gain profitability immediately, which i don't see as likely. also, much of the cash may be restrictive (debt covenants...), but i'm not familiar with psix's story so i can't say much about their debt. they may decide to file for bk just to get better terms/interest rate. since insiders control 10% (less than majority), it's more likely to happen then, say, when insiders own 40% (total is in the 40% neighborhood, but that includes other insiders, companies that may want to put this story behind and just take the loss).
....but, i have to admit they have a good story and someone may just grab them for what it's worth. sprint, at&t and worldcom have their troubles, so i don't know who else will go for a $1-2B acquisition. but, you aren't paying 48 (ge), but .75, so you do have a point, of course.
my pick-of-trouble is: RAD. i think the story is not over on this one, and leonard green (http://www.leonardgreen.com/), the company that bought preferred late last year after the ceo was kicked out (http://www.riteaid.com/company_info/pr/press_releases/111599na.htm), will find a way to rescue this company. I also like MAT, as I think children will soon be fed up with electronics and want to go back to basics...
just my view.
marty |
