Greg - So you don't think that a very good chance of a 50%+ return in
9 months will appeal to anyone (i.e. $22 my November target, and a
current price of $14 3/4, giving a 70%+ annualised return) ?
Had you noticed that APSG's strongest quarters (like most product/
manufacturing companies) are Q2 and Q4 ? What did you think was
realistic to expect for their Q1 ? (FYI - Q1 was the second strongest
quarter they've ever had - it was second only to the strongest seasonal
quarter in their best ever year - i.e. Q4 '97 !).
As regards growth opportunities, their last 10K seemed to be full of
ideas as to where more upside might exist. The company has achieved
revenue growth of 5% in '95, 14% in '96, and 24% in '97. This has
all the signs of a company that is growing in confidence, status and
success. They've just turned in 21% revenue growth qtr:qtr(12mos),
and my $1.10 was based on revs growth of 17%, which they'll probably
exceed (it's said to be lower than their expectations). Note also
that I allowed a quite aggressive increase in R&D expenditure, and
that their Earnings to Revenues gearing is very high - i.e. as they
exceed revenue targets by a little, the earnings go up by a lot. Their
current profit margin is pushing 9%, but there is no reason why
this shouldn't hit 10% on the increased sales revenues. If they do
$115m in sales (20% growth) and get to 10% profit margin, then EPS
will be around $1.25. If they hit $120m in revenues (25% growth), keep
GMs up (40%+), keep other expenditures under control and buy-back some
shares then EPS could exceed the $1.50 number I proposed in December.
At this stage $1.10 is looking very do-able and still makes this an
attractive investment. There is much upside potential beyond this.
As regards sentiment, yes, you are probably right about this currently
being against APSG, but surely this is just over-reaction amongst some
unrealistic investors (ignited by some short-termers profit taking),
and simply creates a buying opportunity ? With 50% of the stock
alleged to be in the hands of employees/management, the liquidity of
the stock is pretty low. This means that a small numbers of trades
can have a significant effect on the price.
I'd be interested in your thoughts on which stocks offer a better
opportunity ?
Mark |
