The Napeague Letter recently began a new feature called the "Blivit
List", made up of brief reviews of stocks which are being aggressively
"hyped".
A number of readers suggested that I take a look at Dawson Science
Corporation (OTCBB:DWSC), which received extensive "exposure"
back in mid-May in a writeup which was e-mailed to many of you. The
"footnote" to the writeup states that "This document may be quoted, in
context, provided that proper credit is given, including the publication
internet address of the publisher." So, to give "proper credit" the publisher
is The Future Superstock (http://www.futuresuperstock.com).
This writeup makes a number of statements which are, at best, "amusing".
Among them is the statement that "During the past three months there has
been one consistent buyer of the stock: Prudential Securities. Prudential is
one of the largest brokerage houses in the United States and a house-hold
name. Every week since January 1, 1997 Prudential has been a buyer of
the stock. As of 4-18-97 (the last available report) Prudential owned
28.7% of the shares in the DTC float."
Now, to explain a few things, DTC stands for Depository Trust Company,
which maintains the electronic records for stock held in "street name". I
am very familiar with DTC Reports; they tell a company the number of
shares of its stock held in the accounts of each clearing brokerage firm. In
other words, this report lists the number of shares that are the accounts of
Prudential's customers. It does not list shares owned by Prudential itself,
and, as a result, this report does NOT indicate that Prudential is in any
way endorsing DWSC!
Another amusing statement is "The current book value of Dawson is $5.67
per share. Most stocks trade with a book value of 10 to 12 times. If
Dawson's stock traded at a book value of 10 to 12 times, the stock would
currently be trading between $56 and $68 per share." Now, I'm not
entirely sure what this statement means, but I'm assuming that the writer is
trying to say that "most stocks trade at 10 to 12 times their book value".
This is an absurd statement.....
There are many more of these in the writeup, including the statement that
"Dawson meets all the financial criteria to be listed on The New York
Stock Exchange". This can't be correct because the company doesn't even
report its financials to the Securities & Exchange Commission, which is a
minimal requirement for NYSE listing.
Because it is a "non-reporting" company, its financials are not available
through the EDGAR System, so there is no financial data available to
evaluate. However, I was able to find a number of recent press releases on
Yahoo - in fact, a surprisingly large number of recent press releases - and
these make for some fairly interesting reading.
On Tuesday, March 25th, DWSC announced "the acquisition of 100% of
the shares of Shenzhen City Zhenghua Traffic and Transportation Main
(Group) Company, Ltd." located in Shenzhen, China. The press release
goes on to state "Dawson paid $102,250,000 USD with a combination of
common and convertible preferred stocks. Shenzhen City Zhenghua Traffic
and Transportation Main (Group) Company, Ltd. owns, operates and
leases over 1,000 taxi cabs and trucks operating in Southern China. With
this acquisition, Dawson will report almost $100,000,000 USD in
assets and $78,314,000 USD in revenues. Earnings of $7,831,000 USD
will yield about $.58 USD per share."
To summarize this press release, it says that DWSC paid around $100
million to buy 1,000 taxi cabs and trucks, which is $100,000 per taxi cab
or truck. It also says that it did this by issuing more stock, but it doesn't
tell how much stock it issued, or at what effective price. It also projects
profits of $7.8 million on this $100 million investment, which is only a
7.8% return on assets. This is a high risk - low return investment.
On May 15th, DWSC announced that it "has obtained permits and licenses
to set up and operate a ``USA type'' car rental business in Guangzhou,
China." This press release goes on to state that " Studies show that the
company can expect approximately $10,000 (USD) profit per vehicle per
year." On May 30th, DWSC announced that it "has secured an unlimited
license from the Chinese government to operate a car rental business in
Beijing, China". On June 6th, DWSC announced that "it has secured an
unlimited license to operate cargo trucks in Beijing, China." These last
two releases used this same annual profit per vehicle projection.
Since this annual profit per vehical rate seemed somewhat high to me, I
took a look at the most recent 10-K Reports for Hertz and Ryder to develop
some benchmarks. Hertz reported pre-tax income of $165.5 million for its
Car Rental Operations from a fleet of 242,000 cars, or pre-tax profits of
$684 per car. Ryder's Vehicle Leasing and Service Division announced
pre-tax earnings of 34.9 million from a fleet of 164,308 vehicals, or pre-tax
profits of only $212 per vehicle. Needless to say, the DWSC projections
appear to be very high....
There are a number of other recent press releases, and undoubtedly there
will be more in the next few weeks, and I could punch holes in each of
them...but it seems pointless.
Taking a look at a chart for the stock, its recent moves are either
impressive or depressing, depending on your viewpoint. Its 52 week
low is 3/4, and it appears to have rocketed to over $7.00 between
daybreak and dawn in mid-May, on a sudden and huge increase in
volume....right after the mass mailing of the writeup.
I have already distributed a brief Review of DWSC to The Napeague
Letter's subscribers, and have just posted this Review on the Napeague
Web Site at napeague.com.
NOTICE:
This analysis is based on publicly-available information, and is in no
way warranted by me as to accuracy or completeness. I do not guarantee
to advise you as to any change in this information. I currently am a
stockholder in this Company and may from time to time purchase or sell
this Company's securities. I otherwise have no affiliation with this
Company, and I am not compensated by it in any way whatsoever. |
