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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Lazarus who wrote (42527)	5/4/2011 3:27:18 PM
From: E_K_S	Read Replies (2) \| Respond to of 78708

Hi Lazarus - Re: Electronic Control Security Inc. (EKCS.OB) Company Web Site: ecsiinternational.com Good Find. This is an interesting, profitable and undervalued Micro Cap stock IMO. I have reviewed their most recent 10K and scanned their 10Q ( biz.yahoo.com ) released yesterday and the following items caught my attention. 1) First the company is earning money. From 2010 through 2011 annualized earnings have varied from $0.02/share to a high of $0.04/share (previous 9 months). At the current price the PE is between 6-10. In their 10Q they stated"...INCOME FROM OPERATIONS. The income from operations for the 2011 Period was $422,845 compared to $461,859 for the 2010 Period. For the three months ended March 31, 2011, we had income from operations of $31,104 compared to $227,282 for the corresponding three months in 2010. The decrease in income from operations in the 2011 Period and the three months ended March 31, 2011 as compared to the corresponding periods in 2010 is due to the delays incurred on the U.S. Navy project with Lockheed Martin as well as the receipt of lower gross margin purchase orders and a less profitable mix of design and engineering support services billings....". Depending on their product mix margins can be as high as 53%. 2) From their 10 K report (pg-5- ecsiinternational.com ), the company has the potential for 2011 sales of $13 Million. Their current run rate for 2011 is $3.73 Million and there is a good possibility that 2011 could be back loaded with high margin products. "...During fiscal 2010, the Company submitted proposals on projects for Department of Defense facilities and certain nuclear power stations in the United States and southeast Asia valued at approximately $13,650,000. A number of these DoD and nuclear projects amounting to $2.2 million was awarded and partially shipped during the fourth quarter of fiscal 2010. Most of these proposals are still pending and awaiting approval, funding and award. We anticipate decisions relating to these remaining proposals within the first half of fiscal 2011 with deliveries scheduled through the last six months of fiscal 2011 and the first half of fiscal 2012....". 3) The company has been in business for quite awhile (since 1976) and owns several intellectual patents (mostly software related) which could be worth $0.10/share. Their furniture & equipment could be worth another $0.10/share (one new piece of equipment is valued at $387K bought w/i the last 90 days). From their 10Q -(Note: This equipment was directly related to our new integrated entry control systems and to the WISE? Water Infrastructure Sensing Equipment, both of which will generate significant sales in the years ahead) So the company is selling around BV which I estimate to be at $0.20/share. 4) Lots of interesting Technologies: Products - ecsiinternational.com Anti-Piracy Technology (APT) - ecsiinternational.com Water Quality Monitoring - WISE® (Water Infrastructure Sensing Equipment) Real-Time Bio/Chemical Contamination Detection System ( ecsiinternational.com ) --------------------------------------------------------------------- Therefore, I am in for a small speculative BUY. I am expecting that in the 2nd half of 2011 the company will be awarded the bulk of their new sales from their proposals still pending w/ DoD. Their 2011 run rate could exceed $4Million (or higher). I expect these sales to be their high margin products. Earnings per share could double from last year which could range $0.04/share-$0.06/share. At a 10 PE, the stock could trade in the $0.40/share to $0.60/share range. That would translate into a 1-2 bagger at the current price level. The risk reward looks attractive. A small speculative Buy for me at the current price of $0.20/share. EKS Note: I have been wrong before and will be wrong again so be careful as this is still a very speculative and illiquid investment.