Screening Eye for the Stock Guy
By Tom Jacobs (TMF Tom9)
October 7, 2003
"...The screen I ran yielded four companies: Multimedia Games (Nasdaq: MGAM), Atlantic Coast Airlines (Nasdaq: ACAI), bebe stores (Nasdaq: BEBE), and ESS Technology (Nasdaq: ESST):
Q1 v. Q2* Q1 v. Q5*
Company A/R Sales A/R Sales
Multimedia Games 141% 7% 242% 22%
Atlantic Coast Airlines 188% 11% 138% 21%
bebe stores 229% (31%) 133% (3%)
ESS Technology 181% (7%) 119% (64%)
*Q1 = most recent quarter, and so on.
I cautioned against shorting or selling based on this screen alone and asked anyone to email me with explanations. Many did. They proved that in each case there's more than meets the screening eye...
ESS Technology
Many company shareholders, as well as the CFO, wrote me that the accounts receivable increase stemmed from a one-time litigation payment to ESS. Kerry Chase went farther and put it all in context, showing the thinking that happens after screening:
"In re ESST in your article 'A Red Flag to Watch' receivables ballooned due to a $45 million licensing agreement with Taiwanese competitor Mediatek on June 12. Mediatek agreed to pay ESST $45 million to settle ESST's patent infringement claim from last fall.
On its income statement for the quarter ending June 30, ESS booked the $45 million as "Other income and expenses," turning a 14 cent loss per share into a 40 cent gain. However, ESS had not yet received payments, so receivables jumped almost $49 million.
While there are indeed causes for concern at ESS, the $45 million receivables probably isn't one of them. ESS gets the money plus future royalties for alleged (but unproven) infringement of a chip that is yesterday's technology. Once paid, ESST will have $4.50 per share in cash with no debt -- even after having spent $68 million the last five quarters to cut shares outstanding 18%.
The big question is: Will its new Vibratto chip get big design wins with DVD manufacturers ramping up for the holiday season? And in the long run, will it invest its cash wisely to make inroads into other digital media?"
Thanks so much, Kerry, for sharing your keen investing mind at work...."
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