Hi John....
Honestly, I don't know what to expect insofar as price action is concerned. Any significant contract signing could have important implications for the stock price.
However, we *know* (based on Jeff Buchanan's comments on the call) that second quarter margins will be about 20%, third quarter will improve a bit over that, and fourth quarter will be still a touch higher. For my own estimates, I am using a 20%, 22%, and 24% scenario for the balance of 1998's quarters, respectively.
Based on the company's assessment of radically improving top line numbers, the quarter to quarter improvements following the second fiscal period should be quite dynamic.
I can well understand and appreciate why management is accelerating expenditures now in order to be ready for heavy shipments near yearend. It is almost certainly the right decision. However, that doesn't negate the fact that it still pushes out to the right the earnings numbers that are necessary to create a dramatic upside re-evaluation of this company's capitalization.
On the other hand, it is perfectly clear that with the recent investment (reputed to be slightly north of $3 million), relatively high levels of capital expenditures, and the necessity of building some higher cost inventory...TFS will almost certainly have to do at least a small financing some time in the next year.
I hope...fervently...that the company makes the financing decision *now*. It is better to go to market prior to your needing the money rather than waiting for the precise time that it is necessary. If you wait, and market conditions are worse, the financing may be more expensive. Moreover, if market conditions are bad enough, perhaps an offering won't even be possible. I know most market participants (and indeed, most companies) aren't currently considering that possibility, but I have been around a long time, and the future isn't perfectly predictable.
Aside from getting the money at a time when TFS has a virtually open-ended story to tell for 1999, it would be a boon to shareholders to attract some research coverage to help with the relatively low current evaluation. Can anyone doubt that a First Boston, Morgan, Goldman, or even Merrill doing research following a convertible underwriting would have a large impact on the value of TFS?
I think not. Let us hope that management is planning ahead. They need the cash, that is clear enough. When they choose to go get it is a reflection on their skill sets, however, and a decision that all of us may have to live with through an entire additional market cycle.
We will all know the outcome soon enough. |
