Mr. Dwane:
Thank you for the compliments. They are appreciated.
Also, no offense was taken. I myself sometimes find myself questioning myself (that makes no sense but please play along <g>). When all details are laid out, a stock which might have seemed attractive at first can seem glowing at the end. The Lynch comparison I made (by subtracting cash per share as well as cash flow per share from the share price to obtain a more accurate picture of what you're paying for each share of stock) sure sheds a different light onto the subject.
I have called the company asking them what they plan to do with all the cash that has accumulated. The person I spoke with (head of IR) informed me the company likes to keep a lot of cash on hand in the event of an unforeseen liability which may result from one of its customers. I said innocently, "Oh, I see. Are there any current litigations or possible suits which pose a problem?" to which he replied, "There are absolutely none."
So besides achieving this record growth, they've been doing it all internally. It's not coming from acquiring debt and making many acquisitions.
It's my own opinion that it won't be after too long that management feels they have adequate cash for any unforeseen problems and might put some of it to work. 5.81 in cash per share for a stock trading at 8$ a share is unimaginable. It's also noteworthy to point out that ISTN is trading in its lower p/e historical range yet its growth seems to be continuing. With this most recent quarter, ISTN's twelve month trailing eps is 52 cents, yielding a p/e of 16.3.
Not bad for a company that grew sales 77% and EPS 92% last year with expected growth of 33%......sorry, these numbers just go round my head :-)
I hope to do a more in-depth research of its competitors and post it here. Basically on the surface we see companies trading at higher ratios with respect to p/es, price to sales, etc. The problem is their expected growth rates and past growth rates with inconsistent margins are not comparable to ISTN's.
I think if you'll be patient, you'll be well rewarded. You can smile in a few months from now looking back realizing the decision you made was for the best. In my own opinion, if you bought shares at these ridiculously low prices (and yes, they are well below my purchase points) and rode them out to December 31, 1998, you'll find yourself with at least a 30% gain (remember: a 30% gain from these levels means rising only to 11$). Considering the fact we've got 3 more quarters to report this year and they all look as bright as this past one, I'm fairly confident their continuing rise in EPS will warrant the price to appreciate to at least this level - even if its p/e were to remain at 16.3.
Since expexted EPS for fiscal 98 is 70 cents, multiplying it by 16.3 to give us an idea of a worse case scenario assuming ISTN meets estimates (and they've usually beaten) yields a share price of 11.40.
Also, because cash provided by operating activities is going straight to the cash account on the balance sheet, we might have 7$ in cash per share by the end of the year.
Does it suffice to say that when a great bargain is biting at your feet, don't ignore it :-)
Conservatively Yours,
Raymond J. Norris |
