Ken,
Oftentimes, in order for me to understand why a particular stock is doing what it is doing, and whether what is happening to it is predictive of anything, I must contextualize it.
Although I think technical analysis can tell us alot, time has proven to me that those indicators are only one part of the picture. I tend to view most things from an ecological perspective and try to determine how they are impacted upon by the environment in which they exist. From a purely technical point of view PRLX would appear to be priced at a level today (higher)than is consistent with it's ability to support itself. Conversely, I feel that when I add in the fact that it's technology is proprietary in nature which will support current and short-term future product pricing and limits the amount of competition it faces at present the value bar is raised. In looking, too, at who is using their product and what the trends in those industries are in an evolutionary sense, I see tremendous growth opportunities for PRLX which are borne out by their earlier expansion into Shanghai, their licensing agreements with the likes of Samsung, their earlier ramp-up for higher production, and their current plan for the issuance of new stock to facilitate further productivity gains.
Another environmental factor I consider is how much of this company is available for public consumption. There are only about 3.5 mil shares out and a float of 1.9 mil for a company that will probably exceed 70 million in revenues this year. That is miniscule and when I talk to the broker I use, who incidentally makes a market in PRLX, and he tells me he can't get enough shares to satisfy the demand, and I watch the pricing patterns which show significant gaps, I am led to believe that very few share-holders are tempted to part with what they own even at these levels. Some of this is speculative in nature but I admit to having, and being led by, instincts at times. :)
Finally, I have studied the management style of this organization. They appear to engage in growth strategies that are well grounded in their experience of current and future markets. I rarely hear anything from them that indicates to me that they are "irrationally exuberant" about their prospects for the future. They both look and sound like their feet are planted firmly and that their primary motivation is to enhance the value of the company, irrespective of share price. The risks they do take are given long thought before they are engaged in. In other words, these appear to be people very serious about maintaining their technological edge while growing the company. Again, this is only my perspective but I haven't seen anything up to this point that shakes my faith in them.
This has gotten lengthy and I still have not answered your question about what I think the fair share price should be. I'm going to go out on a limb here, but I do so with some confidence. I think $28-30 a share is very reasonable when all factors are considered and going even further out, I would venture to say that we could see $35 in the near-term, barring any setbacks, and $40-60 in the long term. I also feel the stock will split again,(don't ask me when)and that any short-term dilutive effect will be overcome fairly fast.
I hope, if nothing else, I have provided you with my reasons for feeling as strongly as I do about the growth prospects for PRLX over the next couple of years. No doubt the price will periodically advance and retreat but in my estimation this company will be one of the best performers in my portfolio.
Best to you,
Steve
P.S. Thank you Howard Cragg for giving us a brief overview of the IBD story! |
