VCR (Sensory Science Corp) may be a good candidate to place in SAM. This stock has been going nowhere but may rise when news about its new line of business gets noticed (music distribution via the web).
The company's current primary product is the dual deck VCR. These units allow one VCR tape to be copied to another. Also you can record one tape while watching another or record from two sources at once. Sales are strong. Second quarter revenues were up 48% and the press release on 1/21 showed third quarter sales were up 50%. More interesting, however is that they are involved in a project which allows CD quality music to be downloaded from the Internet using the MP3 format. Some background:
MP3 - a technology that allows music to be compressed and transferred over the Internet with virtually no degradation in sound quality. Software is available to pull tracks off CDs and convert them to MP3. Currently only one company makes an MP3 player that is available in the US - that's Diamond Multimedia. The player, called the Rio, holds about an hours worth of music and is pocket sized. Diamond has been under a lot of pressure to abort the player since record companies are worried about copyright violations. In fact the Record Industry Association of America sued to block the release of the Rio, but they lost. A BB company called GoodNoise operates a web site that offers music in MP3 format. A few days ago, Rykodisc, a major record company, agreed to convert 200 songs to MP3 format and sell them for 99 cents each on GoodNoise. That is a big step - the first time a large record company has endorsed the format, although the quantity of songs (200) represents just 3% of their music catalog.
VCR's MP3 Position - On 1/7/99 VCR and GoodNoise announced a strategic marketing and development alliance. Under the terms of the agreement the companies will work together to promote and market two of VCR's forthcoming new products -- a pocket-sized digital music player and a Dual Deck CD Recorder. "GoodNoise, which is the Internet's leading seller of music in the MP3 format, will provide Sensory Science with sample music to be bundled with these devices. In addition, GoodNoise and Sensory Science will offer users a co-branded music store on the Sensory Science website (www.govideo.com) so that users can purchase music in the MP3 format at the same time they purchase the pocket-sized music player or the Dual Deck CD-R. GoodNoise will also resell and promote the pocket-sized music player and Dual Deck CD-R on its downloadable music website at www.goodnoise.com."
VCR's MP3 player will offer 60 min. of recording time (just like the Rio), but their Dual Deck CD Recorder product that incorporates MP3 compression will allow "14 hours of high-quality digital music on a single standard recordable CD."
The MP3 player is due to be released during the second quarter of 1999 while the Dual Deck CD Recorder is scheduled for release in the third quarter. They will have help developing the MP3 player. On 1/12/99 VCR announced "a strategic marketing and product development alliance with Saehan Information Systems, one of the world's leading developers of MP3 technology products. Under the terms of the agreement, the two companies will work together in developing an exclusive line of portable digital recording and playback products designed for use with the World Wide Web." Saehan Information Systems is part of the Saehan Group, one of Korea's top 30 companies, and they were the first company to develop and introduce a portable digital audio player using the MP3 file format.
So, we have a company that has experience selling dual deck VCR's that has teamed up with a MP3 manufacturer and an MP3 web site vendor. So far the market does not seem to have taken any notice of this. A few months ago I bought shares in CUST at about $4.50. CUST has no operations but they announced they were considering going into the business of digital music distribution via the web and the stock jumped to $8 and continued up to $12. VCR has definite plans and the stock has gone nowhere. In fact the stock has slipped after the recent quarter's earnings were down due to the increased R&D expenditures. Now lets look at some numbers.
market cap; 31 million
avg. volume: 100,000
float 11 million
52 week range of $1.81 - 4.68.
1999 price range $2.62 - 4.00 (it is near the low now)
P/E: 15
P/Sales: 0.7
P/Book: 2.7
ROE: 33%
no broker coverage
institutional ownership is about 15%, insiders own 10 to 15%
exchange: AMEX
Another kicker. In December VCR began distributing digital TV's under a partnership with Loewe Opta of Germany. Loewe has been in business for 75 years and they sell digital televisions in Europe. (These sets are expensive and should not be big sellers in the near future.)
I'm long VCR. Let me know what you think.
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