from hoovers:
A P/E under six, with growth potential! There must be a catch.
That's the usual conclusion to draw when you see this kind of
situation, especially at a time when stocks like Dell Computer
(Nasdaq: DELL) and the Internet portals continue to soar without
apparent regard to their valuations. But, as investor jitters continue
to bash high-flying stocks, more and more good companies are
starting to sell at cheap prices for no rhyme or reason.
Insider Buying
Insiders at WPI Group (Nasdaq: WPIC) certainly think so, gobbling
up their company's shares before bottom-feeders start to bid them
up. Steven Schulman and John Allard, both directors, bought a
combined 37,000 shares in the open market in the last month at
prices ranging from $5.79 to $7.88. This is way down from the
stock's late 1997 high of $14.75, though above the recent low of $4.
About the Company
Maybe the long-winded company description scares off would-be
investors. In layman's terms, WPI operates through two business
units:
The Information Solutions Group is a leading manufacturer of
rugged handheld computers and terminals designed to function
under harsh environmental conditions. Unlike conventional
computer equipment, WPI's computers and terminals can function
after a 10-foot drop to concrete, total immersion in water (don't try
this at home, kids), or exposure to extreme temperatures. WPI's
products are used in a variety of applications such as vehicle
monitoring and maintenance, utility field service, and factory
automation.
The Power Solutions group produces widgets like heavy duty
power supplies, electronic ballasts (which are specialized power
supplies), and precision Solenoids.
Why do insiders like the look of their business?
In the June quarter, sales were up smartly, to $24.4 million, from
$15.6 million a year earlier. And per share earnings surged 38% in
the quarter to 22 cents. The company also recorded a 2% increase in gross margins from one year ago,
primarily due to an improved product mix and higher sales volume. Management expects that internal growth
as a result of deeper penetration into existing markets will enable growth to remain strong in 1999 and
beyond.
Backlog is now in the high $20 million range versus about $18 million for the same period during the previous
year. So management expects to grow revenue and earnings by 20% annually over the next several years.
What's more, global exposure is almost nil. No need to worry about orders drying up from Asia or Russia.
Present estimates call for 78 cents per share for the fiscal year ending September 1998. In 1999 Wall Street is
expecting revenue of approximately $125 to $130 million and earnings of $1.03 per share.
Based upon discussions with management, we believe that the EPS estimates for 1999 may be a bit
aggressive, and that an EPS figure in the 95 cents to 97 cents range (roughly 25% growth) may be a bit more
realistic. This means that the shares, at Wednesday's closing price of $5.06, now trade at about five times
next year's estimates.
Bottom Line:
WPI seems especially cheap given its strong growth prospects and insider buying.
Analyst: Glenn Curtis |
