Hi Ty,
"Chainsaw Morgan?" <G> You have a brother in the business? <G>
Your commentary is right on...the stock price will move higher only following an *indication* that the company is likely to create sizeable profitability from their orders.
As for the competition, there will be some no doubt, but Simula doesn't have to capture 50% of its markets to be a big winner, as long as they have the management talent to make certain profitability follows along with revenues. There is no point taking on new business, as you well know, if the incremental revenues do not exceed the incremental cost.
I think you ought to cut Senior Management a little slack, however. It is a rare company indeed that has a new product line go from $ 1 million per quarter to $ 1 million per *week* in the space of six months. I have no doubt that whatever inefficiencies that are suffering from can be fixed once the plants are consolidated. Moreover, you should also note that the company's three new product intitiatives (16G seating, ITS, and BABS) are all just now getting into the marketplace and in the incipient stage of building sales or about to be revenue producing. How many small companies do you know that can bring three new products to market (all in differing markets at that) simultaneously without the risk of a "hiccup?"
Moreover, you better than anyone should understand the benefit of "long-term" investing, and the purpose of owning Simula isn't for this month or next, but for the *wave* of revenues from ITS type products that should develop in 1999, fully a year and a half from today. It is much more important that you see them sign another few auto companies (or first-tier suppliers) for ITS applications within the next three to six months than whether they earned a nickel, ten cents, or broke even in the third quarter.
I am a great believer in their technology, but what is more important is that NHTSA is a great believer as well. The Agency's recent 201 regulations made it clear that it wanted to accelerate the use of "advanced head protection" devices because of the significant safety benefit concomitant with their use. The devices are patented, and Simula will get a significant portion of the market. From here to there, the ride might occasionally be bumpy, but the markets are enormous and the government has given the company's product its Seal of Approval.
Remember too, that the time necessary for engineering any change in an auto model's construction is approximately 15-18 months, so even if the company announced a half dozen deals tomorrow there would be precious little revenue flow from it until early 1999. Nevertheless, the market does make a reasonable effort to discount the future, and if it becomes obvious that the revenue will be there (either for their own manufacturing or for a licensing arrangement), the stock will reflect the new fundamentals.
Take care of yourself. |
