Well.. I've done some more DD into this AFS "baby ballard" story and have looked into how urgently I should buy into the story. After reading through all the press releases, the articles, the financial statements, it seems to me that some of the mathematics in the AFS news releases, the article by Laurel De Yturralde, and the FP's article may have given an overly optimistic impression to readers. Perhaps this is why the stock shot up to $3 soon after the FP article and the stock is now correcting!
The FP article seems to get its source mainly from Laurel's article, and gave a similar impression of certainty that AFS has a contract worth $180 million in revenue over 10 years to install Mexican microbuses with the Sparrow units. In fact, the only sure contract at this time is for 1,080 Sparrow units for a total of $1.5 million. And this sale is not new... it was announced by the company in December. The only thing new last week was perhaps the comparison to "baby ballard".
AFT issued a news release the day after FP article was published:
" CALGARY, March 27 /CNW/ - Alternative Fuel Systems Inc., (''AFS'' or the''Company'') announced to day that the Financial Post article of March 26,1998 included certain statements which requires further clarification. AFS has a firm contract with Convertidores Cataliticos Mexicanos(''CCM'') for 1,080 Sparrow Conversion Systems valued at approximately $2,000,000
AFS and CCM entered into a letter of intent on January 13, 1998 which stipulates the delivery of minimum 10,000 conversion systems per year for the next ten years solely within the Valley of Mexico."
The mathematics on the letter of intent seem a bit optimistic. If it takes months to install 1,080 Sparrow units, how do you get to install 10,000 units per year??? Do you have to have a firm contract for each 1,000 units (which means negotiating terms etc... etc)? It begs the question... how firm is the letter of intent?
Before I get carried away in the frenzy of this "baby ballard" I'd better look back and note that it was only last month that 555,555 shares were issued at 72 cents per share (the average market price of the stock in Feb/98) to finance working capital. And from the looks of the Dec 31/97 statement, the slim cash balance ($4,271) may call for further share issuance this year and further dilution to present stock holders.
Question: has the stock price gone way ahead of its fundamentals? All comments are welcome. |
