Richard,
I checked out the entire press release as found on the PTI home page. This has better info than the earnings report in the FP which has verry little real information.
I corrected the earnings for last year to remove the effects of the court settlement. This gives the following:
Q3 Sales, 1996: $459K ($0.021 / share)
Q3 Sales, 1997: $653k ($0.019 / share)
Due to dilution the 42% increase in earnings results in flat earnings on an EPS basis.
9Mo Sales, 1996: $1,284k ($0.056 / share)
9Mo Sales, 1997: $1,691k ($0.049 / share)
Again due to dilution, a 32% earnings increase appears as a slight reduction in earnings on a per share basis. The other thing which is negative is that their gross margin has decreased from 12.7% to 11.7% (i.e., their sales are growing faster than their operating margin which could be a sign that they are starting to have some trouble controlling costs). There is no explanation of this in thepress release - it could be due to a temporary shift in product mix - but it would be bad if this is the start of a decline. Hopefully this will be explained in the quarterly report.
If the Y/Y EPS is lower than, or the same as last year, this may start to put pressure on the stock price, since, in order to hold its current price, the P/E will have to increase. If the P/E stays the same, then the stock price will decrease which, if you like the stock, could present a buying opportunity.
On the other hand, this decline may not occurr if people beleive the companies position that they will experience good growth. According to the press release, they indicate that they have good orders going forward: "We continue to generate significant new business for 1998 and beyond. To date we are estimating the impact of this new business on 1998 revenues to be in the $22 million range". Assuming that they can hold their margins at 11.7%, this would generate incremental operating income of $2.57 million. If they get their margins up to 12.7% again, then this would be additional operating income of $2.79 million.
Regards,
John Sladek |
