A great article on MRVC written on a thread where they choose the best articles for publishing, some written by CEOs others by investors etc...
MRV Communications (MRVC):
Submitted by: Stu Solomon
Recent Price: 22 1/4 3/02/97
It appears MRVC management needs to prove its credibility with the Street as it
is at 22 1/4, 17.5 times '98 earnings. The inventory levels on 12/31/97, 27% of
assets, appeared to shock the Street into thinking there are inventory write-offs
soon to be taken from old inventories. This is a promulgation by the shorts
because it was clearly stated by management in a conference call that:
inventories would be sequentially lower in the first quarter and sales and earnings
would be sequentially higher. Management also said during the call in late
February that inventories have already been worked down at this time. Is this the
type of statement deserving the no confidence bell that the street has given this
stock?
I think the last trade of Mon. 3/2 for 100,000 shares on the ask side has hopefully
cleaned up the last of the sellers and the stock is now ripe for a strong recovery
into the high $20's. With the companies large choice of LAN products and their
newest group of products from XYPLEX (EDGE products connecting the WAN
through the public phone network to the LAN), the company appears to be a
small Cisco.
Trust Company of the West has become the latest 5% holder. Management
holds over 25% and shares fully dilute = 28.5MM. For latest quarter, revenue
grew from $42MM to $48MM and EPS grew from $.23 to $.25. I'm not sure, but I
believe the company has had 39 quarters of sequential gains, and the first quarter
should be no different. Their recent secondary at $35.75 in September and
subsequent rise to $39.25 was a valid move based on their historical growth and
the promise they would grow 50% in '98. If this is true, then 17.5 times expected
EPS is more than a bargain. It's a steal.
Management needs to get this story out, and it is going out on the road cross
country during the week of the 9th to visit institutions. The last time they made
such a Road Show I saw the stock rise 10 points. Management has not failed the
Street. Why else are they willing to visit the LIONS DEN and try to win the
Street's backing with this Road Show?
The company also has a long history of strong European sales and it acquired
Fibronics from Elbit in the fall of 1996. They also picked up a Giga-Hub product
as a strong sales force throughout Europe to add to their existing group. The
fruits of this acquisition are now coming to light as sales in Europe are growing.
Europe has longer trade terms then we have here in the US, so the 12/31 DSO's
grew from 77 to 89 days. This should remain as part of the company's profile.
Higher inventories of finished goods should remain as part of the company's
profile to better provide goods to market faster and better service their clientele.
The company has over $70 million in short and long term investments and it
carries no LT debt. Since they are in a white hot market of Fast Ethernet/Gigabit
Ethernet with strong positive operating profits, they are likely to be acquired. I
think management feels this way and it has tried to keep their share count low.
Overhead is very tight and margins are at historical highs. Net Income is at
14.6%.
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