The key to me is the long term growth.
If they have a reasonable plan for 30% long term growth, and the earnings over the next twelve months will be somewhere between 1.60 and 2.00, then the stock is priced way too low today. I really believe a reasonable price for this stock is in the mid 30s, and even at that point a purchaser should make 30% annually on his investment.
You also wrote:Paul, my experience is somewhat different than yours - I have found that in the small cap arena the first disappointment is in most cases not the last.
I agree for small cap growth stocks that is true. The stock price and business trend usually depends on some competitive edge, or technological advantage, and when the first bad news comes, there is usually more right behind.
But I have done a very thorough search and analysis of how ECM stocks react after a bad news warning and report. In most cases the stocks rebound in 3-6 months, often hitting new highs in 6-12 months. In this industry, if the system is in place to manufacture, finding new customers or correcting one time shipment problems, seems to relatively easy as long as the company is capable of providing quality manufacturing and has a diversified customer base. ACTM has taken a big hit, because I believe they were slow to embrace industry trends, and two of their customers accounted for almost 50% of sales (BAY and 3Com). So the current hit was exasperated by the fear that 3Com won't be the last customer loss. I think this fear is over blown.
OTOH I am not really comfortable with management's long term strategy to concentrate on mid-size customers. I believe this will lead to a lot of customer turnover as some customers simply outgrow ACTM. I much prefer Jabil's strategy of targeting key high growth customers, and do whatever is necessary to grow with them.
But the current stock price discounts all of this and more. I'm on the road and can't access my files, but I recall ACTM has a strong balance sheet, a very effective manufacturing plant with good margins usually, and they are located close to a lot of key customers. Given the very favorable forward PE and PSR, I see the stock a buy here. So today I sold 8% of my Flextronics stock and bought 2000 shares of ACTM, along with 700 bought Friday, brings me to 3700 shares. And the day is still young.
Paul |
