I do not normally post on SI, however, I wanted to share some of my reasons for selling my FAMH shares today. Basically, as much as I hate to admit this, but Little Engine was correct in assuming that the math doesn't add up.
The major problem I have with FAMH is the profit margin they are claiming to have. During the conference call last week Ira mentioned that they are operating at close to a 30% profit margin while Manpower (symbol: MAN) operates at "between a 20-24% margin". It turns out that Manpower has a profit margin of only 2.4%! Hmmm....something's wrong here. I looked into some other companies that are in similar businesses, and they were about the same. SOS staffing (symbol: SOSS) had a profit margin of 3.3% and Kelly Services (symbol: KELYA) had a profit margin of 2.1%. I then reread the Dun & Bradstreet "research" report the company sends out. It had said that the average profit margin of approximately 170 companies was about 2.5 percent (I do not have the report in front of me and do not recall the exact numbers - but these figures are close).
FAMH's profitability can also be verified by comparing Sales/office of the various companies. I found that FAMH is not any more profitable than the other comparable companies. FAMH does approximately $1.6 mil./office (or $8 million/ 5 offices), where as SOSS does $1.5 mil./office; MAN $2.9 mil/office; and KELYA $2.5 mil./office.
So how is it that FAMH has a 30 percent profit margin when EVERYONE else has only a 2.5% margin. My only conclusion is that they are including extraordinary/non-reoccurring sales into their figures (non-reoccurring items are just that- those events that are not apart of the company's operations and cannot be assumed that they will reoccur in the future). This might be the sale of assets or the sale of stock. What ever the case may be, Ira is completely miss leading us with the profitability of the company. You cannot assume that non-reoccurring sales will be there in the future, and you should not mislead your investors by saying your profit margins are higher as a result.
If you now take the average profit margin of 2.5 % (yes, I am assuming that the FAMH is just a normal company) and apply that to FAMH's 1997 sales of approximately $8 mil and outstanding shares of 28 mil, you get an annual EPS of 0.008. Apply a PE of 20 to this number and you will see why I sold my FAMH shares today (......a fair value stock price of 16 cents).
I know many of you will be very skeptical of me, especially since I have never posted on this board before. If you want to email me, my updated email address is lasherm1@yahoo.com (my SI listed email is outdated). I hope you can prove me wrong, because I will be the first one to jump back into this stock....
Lowell |
