Thread, this is a value pick, probably not much downside. Tangible book value (TBV) after Q3'99 (2/28/99) should be near $17.88 and the stock closed today at $14.125. A profitable company with positive earnings and growth expectations should trade well above book value.
My feeling is that it's a low risk buy at these levels, especially with the internet feature, and is worth speculating on the chances of a significant event(s) taking place, i.e., takeover or IPO of business segment. If the current Q ending 5/31/99 shows improvement, i.e., reversal of the P&L trends, look out and hope your looong!
Obviously there is a reason it's trading soooo low. The fundamental reasons it's down, IMO, are declining revenues and declining yields. I don't know if the industry is down or if they are losing market share. I'll research the industry later. Quarterly net sales peaked Q1'99 at $460.5 million, declined to $435.5mm Q2, and Q3 fell to $393.0. Gross margins, operating margins, and net margins are declining as well. As of 11/88 (Q2'99), TTM (trailing twelve months) GM was 15.9% verses an industry average (IA) of 24.8%, Op margin was 3.9% vs. an IA of 6.8%, and the net profit margin was 1.3% vs. an IA 3.9%. TTM SG&A as a percentage of net sales looks high at 12%, most likely the result of the acquisition of Sterling Electronics 1/98. Look for SG&A as a percent of net sales to be up for Q3.
LT debt/TBV at 11/98 is .66. Receivable turnover is a little better than the industry avg while inventory T/O is lower at 4.0x vs. 5.9x.
The good news is that they are cash flow positive and are valued way below industry valuation multiples. The following is per MI's 11/88 financials, except as noted, and today's closing price of $14.125.
Price to cash flow 6.0x vs. IA 21.8x
Price to sales 0.14x vs. 1.7x (per 2/99 earnings announcement)
Price to tangible book .8x vs. 6.1x
Again, a low risk opportunity with significant upside potential.
Later,
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