SmallCapInvestor.com
Digital Ally: You've got a friend
Wednesday June 25, 6:20 am ET
Paul Rolfes
When red-and-blue flashing lights appear in your rear-view mirror, chances are that an image of your vehicle is being relayed from the patrol car into law enforcement’s computers.
Law enforcement is dangerous work, and products from Digital Ally, Inc. (NasdaqCM:DGLY - News) could revolutionize the systems that help protect the officers and the citizens they protect and serve.
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The Overland Park, Kan., company has come a long way within an extraordinarily short period. So far, two analysts have initiated coverage, with both saying it’s time to buy and expecting the current share price of around $9 to double by next year. Shares of Digital Ally, which began trading over-the-counter in May 2007 at $2.25, closed Tuesday at $8.88.
Digital Ally began in 2003 as Trophy Tech, a maker of bow-hunting products that included video-recording systems. The business plan changed in 2004 to bring its video system to law enforcement. Products began shipping in March 2006.
State-of-the-art public safety vehicles are rolling data points but space is at a premium. In this space race, Digital Ally is winning.
The first product was a compact solid-state video recording system that replaces any rearview mirror — a competitive advantage — with cameras monitoring the windshield and rear seat. Data is transmitted wirelessly. The potential market is huge around the world and at $3,995, Digital Ally says its units cost $1,500 less than its competitors.
Digital Ally also has a high-intensity flashlight that’s just coming to market, which includes a built-in video recorder and similar proprietary technology.
“Its technology is state of the art, in terms of their ability to put in a system that takes up very little space,” John Putnam, senior analyst with Dawson James Securities in Boca Raton, Fla., told SmallCapInvestor.com. “Competitors’ systems need four or five different components, and block the view of the driver.”
Putnam initiated coverage June 12, with a “strong buy” and a $17.50 price target for Digital Ally. Putnam thinks the stock is undervalued and remains mostly below Wall Street’s radar. “We doubt the company has a great deal of visibility among investors as evidenced by the fact that institutional ownership is only 2% of the shares outstanding.”
At the beginning of the year, Digital Ally shares moved to the Nasdaq Capital Market, after trading over the counter. Its advisers include John Ashcroft, the former U.S. Attorney General, and William Sessions, the former FBI director.
On an April 30 conference call to discuss first-quarter results, Digital Ally said it has 8,000 units in the field, with orders coming from 1,700 customers. On May 30, the company said it received an order for 1,000 additional units from a large international law-enforcement customer. Digital Ally also reiterated a full-year outlook calling for revenue to double to $40 million.
In the three months ended March 31, revenue increased 150% to $8.6 million from the year before, with a 22% sequential improvement from the last three months of 2007. Net income climbed to $1.68 million, from $162,150 the year before, with earnings per diluted share of $0.10, compared with the year-ago $0.01. The company’s cash position also remains strong at $4.9 million.
Stan Ross, chief executive of Digital Ally, told investors on the April call that the quarterly results could serve as “a template that can be developed. We’re not slanted with international orders, we’re not slanted with any one-time big orders from individuals.”
In addition to state contracts from Arkansas, Mississippi, West Virginia and others, along with orders from Canada, Mexico and Europe, Digital Ally is focusing on small- to medium-sized jurisdictions. One reason, company executives explain, is that the smaller agencies can commit to purchases faster than larger ones.
At its May 1 annual meeting, Digital Ally introduced a slimmed-down model for taxicabs and other transportation businesses that also includes global positioning. A system for school buses and a helmet cam are coming.
“I’m a little more excited about how ’09 is look like,” Ross told investors, noting the new products.
Digital Ally is just starting to mine homeland security and other security markets.
On May 13, Joe Blankenship, vice president of research at Source Capital Group in Scottsdale, Ariz., initiated coverage with a “buy” recommendation and an $18 price target, because of sales potential.
Bigger brokerages haven’t initiated coverage of Digital Ally. The name has shown up on financial blogs, and Dan Jacome, who just finished his MBA at Indiana University, wrote about the stock at SeekingAlpha.com in March. Jacome, who has started a small investment fund called Ceviche Fund Partners LP, explained what piqued his interest: “It became a three-legged stool. This was a stock that not many analysts appeared to have discovered; the stock had just moved to Nasdaq, and it was a law-enforcement-related stock, which I thought could potentially offer returns such as Taser (NasdaqGS:TASR - News). It looked cheap even at two times sales.” In March, Digital Ally was trading around $7.
Digital Ally intends to become a good buddy of law-enforcement agencies, and its stock could prove to be a solid ally of investors as sales grow. |
