If you are wondering why the price moves up it's because the stock is tremendously undervalued. The one time charge taken in the 4th quarter and the increase in the number of shares has made the valuation a little confusing. The loss in the 4th qtr. should not be factored into the valuation because it was a one time charge and revenues increased by 68% in the same qtr. so that tells you there was nothing wrong with the company and in fact it's growth was continuing on track.
The trailing 12 months net income excluding the one time charge is $924,000. With the addition of 200,000 shares from the acquisition of PRO-TEC, the total amount of shares outstanding is now around 3,500,000 and this gives us $0.26 eps which at a price of $6.00 per share produces a P/E of just 23.
Because Lukens has loss carry forwards I use their revenues to base the company's growth rate, which has been around 60% for the last year. So Lukens has a P/E of 23 and is growing at a 60% rate. As we all know, in theory, a company's P/E should equal its growth rate. This is a FOOL ratio of only .38, and now to show you just how undervalued this stock is. Analysts estimates for 1997 are $14 to $16 million in revenues and $0.45 to $0.50 in earnings per share. This would put the company's growth rate at 100%. If they do earn $0.45 per share, with a P/E of 30 that would be a share price of $13.50. We must also take into account that these estimates were released BEFORE the FDA approval of their PGA absorbable suture, and the acquisitions of both PRO-TEC and Techsynt. I hope those estimates turn out to be very low.
I have spoken with the company on several occasions and some of the info I have gathered is as follows:
Davis & Geck and Ethicon were the only two producers of synthetic absorbable sutures, since the patents just ran out, Lukens is now the third manufacturer of synthetic absorbable sutures and because there were only 2 players before, prices are high for that product and that is why the world is crying for an alternative source of this product. I was told that Lukens has a 1 to 2 year head start on any other new manufacturer.
The joint venture with Serral in Mexico to produce suture needles is not yet online, the goal is 1997. Lukens owns a 51% interest in this venture. Luken's investment is $800k of equipment that has been lying around collecting dust since its IPO days when Lukens was going to manufacture their own needles.
They distribute their products in over 30 countries and they are working on expanding into more.
Lukens will never do an acquisition that will be dilutive to the company, PRO-TEC's earnings will carry the 200k extra shares.
Managements main goal for the company is GROWTH.
Some Lukens vs: Industry comparisons are:
Luken **** Industry
P/E 23 **** 39.2
Price/book 2.6 **** 6.4
Rev. growth 56% **** 16.6%
EPS growth 100% **** 14.1%
I have accumulated a lot of Lukens over the past month, I see the one time loss in the 4th Qtr. as producing a buying opportunity which I took advantage of. This company has great management, financial backing from their directors, expanding into more markets around the globe, acquiring product lines and then moving them into their global distribution channels and the numbers on the company show it to be tremendously undervalued and on track for continued high growth.
Mark |
