Gentner's IR told me they would run out of their tax loss carry-forward at the end of Q1. I'll assume a tax rate of 38% in the following calculations, but I'm not sure that's right yet, I'll check with Gentner.
If you adjust 1998 EPS of 18 cents for income tax, you get an adjusted EPS of 11 cents. Now take next year's estimates and adjust for one quarter of no taxes and you get an adjusted EPS of 16 to 20 cents a share. That's a projected EPS growth rate of 45% to 81%. These numbers are a bit deceiving, try this:
1998 - Net income of $1.4 million, before and after tax
1999 - Projected net income of $1.9 million before tax, $1.4 million after, using low end of estimate. Projected net income of $2.4 million before tax, $1.8 million after, using high end of estimate.
This gives us a year over year increase in before-tax earnings of 36% to 71%. For a stock trading at a P/E of 13, that's unbelievable (and tells you that the stock market isn't convinced yet of Gentner's prospects).
I'd expect Gentner's long-term growth rate to be more in the 20% to 30% range. I'm happy, though, if they prove me wrong. If you take the low end of their estimate, adjust it for taxes, and apply a P/E of 20, you get a price of $3.20. Take the high end adjusted for taxes, give it a P/E of 30, and you get a price of $6.00.
If Gentner can deliver on their estimates, it's the steal of the century. Historically, of course, they seem to have a pattern of making money for a year, then losing money for a year, then making money, etc. If you're long, you're betting that new management has broken the pattern.
Also, I would hope that Ms. Strohm's projections for next year take into account the aberration due to the release of the AP800.
--Jon |
