Zoltek stock will meander down to $15/shr and will stay in a trading range of 15-20 for some time to come.
The reasons are many, regardless of the charts and the hopes and dreams of this little engine. Growth out to the turn of the century will remain about 15%-17%, with earnings coming in around $1.00 to $1.10. The strategy selected by ZOLT was not differentiation, but rather lowest-cost provider. The hope was $5/Lb. of quality fiber which would spur new applications. The technology supposedly was in hand, it was a lack of production capacity that was limiting sales. As new capacity was brought on, with some economy of scale, and the higher margins expected with the low cost production technology, earnings were to skyrocket.
Now he can't even sell what he's producing, and new applications have not come about. If you look at both ROE and profit margins over the last few years they have fallen by over 50% while just maintaining ROA. If you correlate sales with market capitalization, the competition is doing 40% better. I won't even mention operational cash flow, it upsets some of the bulls, but I think a company should be increasing free cash just in order to survive.
I know I'm considered a 10K freak, but I tend to put more credence into auditable reports required to be delivered to the SEC than to the hype of the annual and periodic company reports. Based on the reported financial data to the SEC, I predicted the stock would be between 14 and 20 back in the first quarter of the year when it was 35, again in early June when it was 29, two weeks ago when it was 24 and now today when it's about 20.
May I be wrong -- yes. I just think it's going to take a big-time significant surprise or breakthrough to turn this stock around -- breaking the psychological barrier isn't going to do it in my opinion.
For those with a conversational relationship with the CEO, you might ask him where the company is re their $/# goal, capacity goal, new application goal, and if the current demand for fiber (existing applications) from ZOLT is decreasing.
Regards |
