Re: <<Again, though, keep in mind that the main focus of this stock, aside from the popularity of Soundblaster, has been gross margin improvement.>>
Vanni,
I strongly disagree. IMO, margins are not the concern or focus. Revenue is the key with CREAF. Margins have been solid and should continue to be helped tremendously by currency as you suggested. The long time concern has been and is revenue growth (which has been sporadic). Management is addressing this concern on three fronts. 1) They are growing revenue by making stategic acquisitions. The two recent acqusitions look very promissing and fit in very well. 2) They are diversifying their product line and changing their focus from being just a soundboard company to a complete multimedia solution provider (e.g. Encore). 3) They are actively pursuing strategic alliances/partnerships with OEM's. This represents a HUGE incremental opportunity beyond their current retail business.
All three pieces fit very nice together but all of these strategies to grow revenue will most likely drive margins down. So what? The name of the game is maximizing total margin dollars not margin percentages.
For example,
Company A rev=9B margin % = 40
Company B rev=5B margin % = 50
Company B has better margins but all else equal, I'll take Company A.
Despite having great margins, CREAF remains undervalued because of the lack of consistent significant revenue growth. As you said, you can only cut costs and control expense so much. Also, you can't rely on currency to continue to help costs forever. The only way to grow the value of the company is to bring in more total dollars (even if it's at a lower margin percentage).
As for cash, again I strongly disagree. CREAF does have a lot of cash which comes in very handy when you are trying to grow the business. It's very convenient to be able to gobble up new revenue generating businesses without issuing stocks or taking on debt.
In summary, I remain long and very optimistic on CREAF because I think management is fully aware of the need to grow revenue and they have been excuting a well thought out strategy to accomplish this mission.
Good luck to all,
FF |
