James,
FATS business is creating a virtual simulation of a crime scene or battle zone that can be used for firearm and weaponry education and training in a controlled environment without the use of real ammunition.
They basically take the weapons (real), attaches electrical sensors, connect it to a computer running their proprietary software and sell it along along with installation, training and maintenance.
What I like about them:
Its a niche market with a lot of potential mostly because of the cost savings. From what I know, FATS basically owns the market.
Its in my hometown and from contacts I believed (and still do) that business is going well. I hace had a demo of one of the systems and was impressed.
It always has the potential of being bought out by a larger defense contractor.
It has good international potential, as evidenced by some of the foreign contracts.
Everything I read about them was basically positive.
Sounds great so far...until you get to the one major downside...having to deal with governments and other public institutions. Unfortunately, with a small company, one large expected contract that is pushed out or cancelled can have a devastating effect. (According to the press report, this one has pushed back, but with the goverment you just never know).
I still like the company and think it has potential. Until now, I've always complained that the company wasn't getting noticed...thats certainly changed, although not in the light I was thinking of.
Today Robinson-Humphrey, one of the few analysts tracking FATS, reduced their estimate for the current year from .66 to .31. This is a 53% decrease, larger than the companies own stated decrease of 25%-40% in the recent press release. This may leave some room for an upside suprise, but I think RH is basically pissed about it all.
At .31 and $7, it leaves us with a pe of 22.6. No bargain, but if you think they can beat the estimates, it may be. For instance, lets say they miss the .66 estimate by 32.5% (midrange of 25 and 40), that gives them ~.45 and a pe of ~16. Looking a bit better.
As I said earlier, I still like the basic fundamentals and so am probably going to hold right now. I may buy more, but that would be later as I find out more.
Short term it may have been overdone and a bounce to ~10 is possible, but thats just a guess. |
