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Microcap & Penny Stocks : The Henley Group, Inc. (HNLY) undervalued growth company
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To: ChrisJP who wrote (839)3/10/1998 12:48:00 PM
From: Psycho Killer  Read Replies (1) of 2232
 
Chris --

I have been wondering myself why Magra hasn't been making money despite its growth in sales. Guess there are a few possibilities.

One possibility is that Magra isn't charging enough, and in effect is winning business from competitors by selling at a loss. In other words, that we are seeing "profitless growth."

Another possibility is that Magra's growth has required addition of people and other expense items that has temporarily outstripped sales growth.

A third possibility is that Magra has been undisciplined in its growth, and has incurred unnecessary expenses.

The "expenses" explanation for why Magra isn't profitable may be plausible, but only up to a point. Magra's "expenses" include wages, and there's no way the company can bring in revenue without paying for the computer people who do the work in the field. Plus, the other expenses such as office space, travel, and telephone seem bound to increase as Magra expands into other countries (a strategy that seems kind of dubious to me). Since Magra had operating losses of $230K in fiscal year 1997 (in addition to $75K in amortization), it would have had to made some pretty large cuts in expenses just to break even.

As demand outstrips supply for the type of computer people hired by Magra, one result should be upward pressure on wages. Also, assuming Magra can keep its people, as they get more senior their wages and benefits should increase. Controlling its labor costs and keeping its employees could become a critical part of Magra's mission. Are companies in your industry having any trouble holding onto their employees?

-- Jim
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