Hi Don!
I would not buy Audiovox at this time, so please don't take my comments as an attempt at anything other than a discourse on some of the pros and cons of this stock.
Unfortunately for those who don't read SEC filings, there's an additional 2,260,954 shares of convertible stock not factored into per share numbers
Actually, the 10Q for the period ended 5/00(the most recent I found on EDGAR) shows 20,262,558 common "A" and 2,260,954 common "B" for a total of 22,523,512.....Yahoo shows total shares at 22.6 million.
....the PE numbers do not take into consideration the frequent "one time charges" for inventory write downs. If inventory has to be written down twice a year it is NOT an "extrodinary item". It's a part of normal operations....
According to the most recent 10K, they wrote inventory down 11.8 million in 1995 and had another write-down of 6.6 million in 1998. The one in 1998 it appears was the result of the "Asian Flu"(my supposition, not their statement)and it's impact on prices due to Asian companies deeply discounting goods to export their way out of their financial crises. Given the rapidity of miniaturization of semiconductors and integrated circuits over the last 5 years, I'm surprised that there isn't more of this type of write down....Even with "just in time" ordering, I suspect the write downs still might increase in an economic slowdown as companies producing for a vastly greater order flow suddenly find themselves with cancelled orders and now inventory on hand (that has a rapid obsolesence factor) that they can't move due to demand drying up.
The write-down in 1995 I haven't researched.
A careful reading of filings gives a good example of a company whose primary business is selling stock and other securities
I came to a different conclusion. Their sales of merchandise have exploded in the last two years. And from 1996-1999 they converted $63 million of $65 million 6 1/4% convertable debentures into 9.7 million shares of stock.....but the net effect of that was the elimination of debt, not the creation of it.
Also, they borrowed $93 million in 1999 to finance their rapid sales increases, but apparently have paid back $67 million in the first two quarters of 2000.
Toshiba bought a 5% stake in one of their subsidiaries, which resulted in an increase in outstanding shares in 1999, but that is somewhat common practice.
Is Audiovox a bad company? I hardly think so. It's a brand most people should recognize without thinking too hard. At the same time they are highly exposed to the economy, declining sales of autos, and the yen.
I definitely agree that they are highly exposed to the economy. The trend that most concerns me right now with them, and why I am not yet buying, is the rapid rise in receivables to levels that are astronomical when compared to a few years ago. With this kind of increase, a company must have sound credit issuing guidelines and collection practices and the experienced personnel to implement them. Audiovox may have these, but since I don't know, this adds a measure of risk that is not quantifiable for me at this time.
A review of their cash flows indicates that their flows have been severely impacted by this rise in receivables; both on the 10K and the most recent 10Q. If these receivables are indeed largely collected, then the positive impact on cash flows will probably make this stock price take off.
They also have a huge rise in inventories as a result of their explosive sales growth. Have they learned from the previous lessons, or is there another write-off coming down the road?
If I could get a handle on the answers to these two issues, I would have an easier time making the decision to purchase or pass. |
